PPCMP Capital Markets2012FIN PDF

SURVEY REPORT I 2 011-2012
B y Dr. Jo h n K. Pagl i a
Denney Academic Chair and Associate Professor of Finance
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PEPPERDINEPRIVATECAPITALMARKETSPROJECT|CAPITALMARKETSREPORT20112012
PEPPERDINEPRIVATECAPITALMARKETSPROJECT

SeniorResearcher
JOHNPAGLIA,PhD,MBA,CPA,CFA

ResearchSupport
IRINASHAYKHUTDINOVA,MBA

ExecutiveOfficer PublicRelations
MICHAELSIMS F.DOUGLASSGORE
KPPUBLICAFFAIRS
AdvisortoProject
RACHELWILLIAMS Design
R&RPARTNERS

ACKNOWLEDGEMENTS
Thisresearchwasmadepossiblebythegenerousfunding
fromtheDenneyEndowedProfessorship.
PEPPERDINEUNIVERSITY
DeanLindaA.Livingstone,PhD
AssociateDeanDavidM.Smith,PhD
MarkW.S.Chun,PhD,Director,CenterforAppliedResearch
DianneKing JuanMena
MichaelStamper JingZhang
DarleneKiloglu DorisJones
RogerLotho
DUN&BRADSTREETCREDIBILITYCORP.
JeffreyStibel,ChairandChiefExecutiveOfficer
AaronStibel,SeniorVicePresident,Technology
JudyHackett,ChiefMarketingOfficer
ErikSimon
BrendaGary

2011|PEPPERDINEUNIVERSITYGRAZIADIOSCHOOLOFBUSINESSANDMANAGEMENT.AllRightsReserved.|1
ORGANIZATIONALSUPPORT
AllianceforMergersandAcquisitionsAdvisors(AM&AA) InternationalBusinessValuationAssociationLinkedinGroup
AssociationforCorporateGrowth(ACG) InternationalFactoringAssociation(IFA)
BusinessValuationResources(BVR) LinkedBusinessLinkedinGroup
CaliforniaBankersAssociation(CBA) LosAngelesVentureAssociation(LAVA)
CaliforniaMortgageBankersAssociation(CMBA) NationalAssociationforSmallBusinessInvestment
CaliforniaSmallBusinessAssociation(CSBA) Companies(NASBIC)
CommericalFinanceAssociation(CFA) NationalAssociationofWomenBusinessOwners
DealFlowSourceLinkedinGroup PE/VCRoundtable
ExitPlanningInstitute PepperdinePrivateCapitalMarketsProjectLinkedinGroup
FinanceClubLinkedinGroup RiskManagementAssociation(RMA)
ValuationLinkedinGroup
GraziadioAlumniNetwork(GAN) VentureCapitalLinkedinGroup
Harvard/USCBusinessGrowthConference VirginiaActiveAngelNetwork(VAAN)
InternationalBusinessBrokerAssociation(IBBA)
SURVEYDESIGN,DISTRIBUTION,ANDOTHERSUPPORT
RobertT.Slee LetitiaGreen SeanSamet

MichaelMcGregor GloriaGuenther MarkWalker
TimRhine StevenBrandt KellySzejko
BarryD.Yelton DatT.Do KevinHalpin
EverettWalker AndyWilson AndreSuskavcevic
SamirDesai YingpingHuang ChrisM.Miller
RichardJ.Crosby JasonBaum BrianCove
LeonardLanzi JasonKumpf JeffThomas
GrayDeFevere HalSpice JohnLonergan
JanHanssen JanePak RobBrougham
RobertZielinski RalphAdams
BrettPalmer
KevinD.Cantrell EricWilliams
GaryLaBranche
ScottJones DanDeeney
JohnGraham JamieSchneier
DeidreA.Brennan
JeffNagle TroyFukumoto
EricNath
GuntherHofmann GregHowath DennisGano
MichaelPainter NevenaOrbach LinhXavierVuong
JamesA.Nelson,MD JohnDmohowski ChrisdeVries
JohnDavis BradTriebsch TuckerHerring
LarryGilson GaryW.Clark MichaelNall
AndrewSpringer M.ToddStemler SimonJames,PhD
JeriHarmon PatrickGeorge

TABLEOFCONTENTS

BUSINESSAPPRAISERSURVEYINFORMATION...................................................................................................10
OperationalandAssessmentCharacteristics.....................................................................................................10
INVESTMENTBANKERSURVEYINFORMATION..................................................................................................14
BROKERSURVEYINFORMATION.......................................................................................................................24
LIMITEDPARTNERSURVEYINFORMATION........................................................................................................32
ANGELINVESTORSURVEYINFORMATION.........................................................................................................39
VENTURECAPITALSURVEYINFORMATION........................................................................................................46
PRIVATEEQUITYSURVEYINFORMATION...........................................................................................................54
MEZZANINESURVEYINFORMATION..................................................................................................................63
BANKANDASSETBASEDLENDINGSURVEYINFORMATION...............................................................................70
AssetBasedLendingSpecificCharacteristics.....................................................................................................79
ABOUTTHEAUTHOR.........................................................................................................................................81
INDEXOFTABLES..............................................................................................................................................82
INDEXOFFIGURES............................................................................................................................................84

EARN A CERTIFICATE
IN PRIVATE CAPITAL MARKETS
T he Certificate in Private Capital Markets (CIPCM) is a 3-day curriculum- NOVember 14-16, 2011
and
based training program developed by Dr. John Paglia in association with
April 18-20, 2012
his ground-breaking research, Pepperdine Private Capital Market Project.
Designed for business owners and professionals employed within the finance, Pepperdine University
banking, investment, mergers and acquisitions, valuation, management Graziadio School
of Business
consulting, legal, and accounting fields
and Management
Learn in-depth critical analysis and evaluation skills necessary for successfully 6100 Center Drive
Los Angeles, CA 90045
operating a business within the private capital markets
Overview of Private Capital Markets Theory and Sources of Capital
For more information, visit:
The Role of Intermediaries http://bschool.pepperdine.edu/cipcm
Angel Investments, Venture Capital, and other Early Stage or contact Rachel Williams at
Financing Sources Rachel.Williams@pepperdine.edu
Senior Debt, Cash Flow Based, Asset Based Lending and Factoring
Mezzanine and Private Equity Capital
Determining the Cost of Capital Using The Pepperdine Private Cost of
Capital Model
CPA, MCLE, CFP Continuing Education Credit Available
REGISTER: bschool.pepperdine.edu/cipcm
Building wealth by making better investment and financing decisions.
Master the leader in you.

FOREWORD
Growth Capital Fixated on Large Companies

ByJOHNPAGLIA
Since its onset in late 2007, the Great Recession has created neverbeforeseen economic conditions for
economies around the world. Private capital markets have endured significant turbulence during the economic
downturn.Frombusinessclosurestobankfailurestofinancialservicebailouts,wehaveseensomesurvivorsand
many,manylosers.
Sincethe2008passageoftheTroubledAssetReliefProgram(TARP),wehaveseenrapidevolutionofthecapital
providersindustry.Atthesametime,capitalseekershavestruggledtosecurefunding.Theeraofeffortlesscredit
linesandbankloansforsmallbusinessesislittlemorethanafondmemory.Venturecapitalistshavebecomemore
focused on investments in safer, more established companies. Angel Investors are increasingly taking up
opportunitiesvacatedbyVCs.Privateequityandinvestmentbankersareenduringlongerperiodstoprofitablyexit
deals.
Theserapidchangeshaveleftpolicymakersfumblingforhastilyformedgovernmentbasedsolutionstocorrectthe
markets.Atthesametime,overstretchedbusinessownersandcapitalprovidersarestrugglingtocreateworkable
marketbasedsolutions.
One thing is clear; businesses, capital providers, policy makers and economists would benefit from more upto
date,preciseinformationtoaidtheprivatecapitalmarkets.Improvedunderstandingoftheentiremarket,notjust
individual segments, from capital providers to individual businesses would improve operations and market
efficiency.Italsowouldsavebusinessownersincalculablehoursspentchasingcapitalandcapitalproviderstime
reviewingonlythosecompaniesthataredeservingofinvestment.
ThePepperdinePrivateCapitalMarketsProjectisthefirstcomprehensivesetofdatatolookatthemarketfrom
businesses to capital providers perspective. The Capital Markets 20112012 Report allows capital providers to
betterunderstandtheissuesasdeterminedbypeerlendersacrossthemajorcapitalsegments.Thereportalso
sharesbehindthescenesinsightsintothemindsofcapitalproviders.
The Capital Markets 20112012 Report has uncovered data that highlights the state of the overall market. For
example,PrivateequityfirmsandInvestmentbankershavecloselymatchingpointsofviewregardingaccessibility
ofcapital.Accordingtothemostrecentdata,76%ofthe253investmentbankerssurveyedsaidthatthenumberof
companieswith$1millionEBITDA(acompany'searningsbeforethedeductionofinterest,taxandamortization
expenses)whoareworthyofinvestmentexceedstheamountofcapitalavailable.Whereas,58%oftheinvestment
banker respondents said the capital available exceeds the number of companies with $100 million EBITDA that
meetinvestmentcriteria.Intermsofprivateequityrespondents,63%ofthe288surveyedsaythatthenumberof
companieswith$5millionEBITDAthatareinvestmentworthyexceedsthecapitalavailable.Ontheotherhand,
58%ofprivateequityrespondentssaidthatthecapitalavailableexceedsthenumberofcompanieswithover$100
millionEBITDAwhoareworthyofinvestment.

Historically,agreementamonginvestmentbankersandprivateequityfirmsisuncommonbuttheiragreementis
corroborated by the fact that larger safer companies enjoy access to growth capital. However, smaller
companiesseekingcapitalgreatlyoutweightheavailablecapital.
Otherrevealingfindingsinclude:
Dealsaretakinglonger.Respondentsinprivateequitysurveysaidonly12%plannedIPOs.Respondents
exitstrategiesincludesellingtoaprivatecompanyat28%,another26%ofrespondentsplantosellto
anotherprivateequitygroupand22%saytheywouldselltoapubliccompany.PEfundersalsosaidthey
arewaiting4yearsormoretoexitregardlessofinvestmentsize.

Refinancingcomprisesalmosthalfofbankloans.Respondentstothebankssurveysaidrefinancing
accountedfornearly49%ofalllendingactivityfollowedbyexpansion(22%)andworkingcapital(11%).
Thelargestconcentration(58%)ofloansizeswasbetween$1millionand$25million.

Privateequityfearsfutureregulation.While11%saidtheyfearedgovernmentregulationandtaxes
today,28%saiditwasanemergingissue.Thiscouldbeinresponsetoarecentlyapprovedrulefromthe
CommodityFuturesTradingCommission(CFTC)(October31st)requiringthelargestU.S.hedgefundsand
privateequityfundstoreportfinancialinformationtothegovernmentstartingnextyear.TheCFTCrule
wasalsopassedbytheSecuritiesandExchangeCommission.Thereportingrequirementsweremandated
underthe2010financialoverhaullaw.

In2004,RobertT.Sleewrote"PrivateCapitalMarkets:Valuation,Capitalization,andTransferofPrivateBusiness
Interests, in which he discussed the importance of the private capital markets but relatively little market wide
understanding or research. The Private Capital Markets Projects Capital Markets 20112012 Report seeks to
improve the innerworkings of the private capital markets based on real world responses and reactions from
professionals. Through improved understanding of market wide conditions and interconnectedness based on
responsesfrombusinessownersandcapitalproviders,publicandpolicymakerswillbebetterabletoencourage
marketdrivensolutions.

PEPPERDIN
NEPRIVATECAP
PITALMARKETSPROJECT|CAPITTALMARKETSR
REPORT20112012
PEPPEERDINEPRIVAT
TECAPITALMA
ARKETSSURVEEY
ThePeppe erdineprivateccostofcapital survey(PCOC)isthefirstcoomprehensive andsimultaneeousinvestigattionof

the major private capitaal market segmments. The survey deployedd in Septembeer 2011, speciffically examineed the
behavior of
o senior lende ers, assetbase
ed lenders, mezzanine fundds, private equ uity groups, veenture capital firms,
angel investors, privatelyheld busine
esses, investme ent bankers, bbusiness brokeers, limited parrtners, and buusiness
appraisers. The Pepperd dine PCOC surrvey investigatted, for each private capital market segm ment, the important
benchmarkks that must be
b met in orde er to qualify for capital, how
w much capitaal is typically aaccessible, what the
requiredre eturnsarefor extendingcap pitalintodaysseconomicenvvironment,andoutlookson demandforvvarious
capitaltypes,interestrattes,andtheecconomyingene eral.
Ourfindinggsindicatethaatthecostofccapitalforprivvatelyheldbussinessesvariesssignificantlyb bycapitaltypee,size,
and risk assumed. This relationship iss depicted in the Pepperdinne Private Capital Market LLine, which ap ppears
below.
Figure
F 1. Priv
vate Capital Market Requ uired Rates o of Return
100%
Angel (38% 45
5%)
90%
80%
70%
60%
VC(28% 3
38%)
50%
PEG(23% 330%)
40% Mezz((18% 23%)
30% ABL(4% 7%)
7
20% Banks (5 7%))
10%
0%
1stQ
Quartile Median 3rdQ
Quartile MedianSp
pring2011

2011|PEPPERDINEUNIVERSITYYGRAZIADIOSCHO
OOLOFBUSINESSSANDMANAGEMEENT.AllRightsResserved.|7
Thecostofcapitaldatapresentedbelowidentifiesmedians,25thpercentiles(1stquartile),and75thpercentiles
(3rdquartile)ofannualizedgrossfinancingcostsforeachmajorcapitaltypeanditssegments.Thedatarevealthat
loanshavethelowestaveragerateswhilecapitalobtainedfromangelshasthehighestaveragerates.Asthesizeof
loanorinvestmentincreases,thecostofborrowingorfinancingfromanyofthefollowingsourcesdecreases.
Table 1. Private Capital Market Required Rates of Return
1st quartile Median 3rd quartile

Bank ($1M CF loan) 6% 6% 7%
Bank ($5M CF loan) 6% 6% 7%
Bank ($10M CF loan) 5% 6% 7%
Bank ($25M CF loan) 5% 6% 6%
Bank ($50M CF loan) 5% 5% 6%
Bank ($100M CF loan) 4% 5% 5%
ABL ($1M loan) 4% 7% 9%
ABL ($5M loan) 4% 7% 9%
ABL ($10M loan) 4% 7% 9%
ABL ($25M loan) 3% 5% 5%
ABL ($50M loan) 3% 4% 4%
ABL ($100M loan) 3% 4% 4%
Mezz ($1M EBITDA) 21% 23% 25%
Mezz ($5M EBITDA) 21% 21% 24%
Mezz ($10M EBITDA) 18% 19% 21%
Mezz ($25M EBITDA) 18% 18% 19%
Mezz ($50M EBITDA) 16% 18% 18%
Mezz ($100M EBITDA) 15% 18% 18%
PEG ($1M EBITDA) 25% 30% 34%
PEG ($5M EBITDA) 24% 26% 30%
PEG ($10M EBITDA) 24% 25% 30%
PEG ($25M EBITDA) 23% 25% 30%
PEG ($50M EBITDA) 23% 25% 30%
PEG ($100M EBITDA) 21% 23% 30%
VC (seed) 28% 38% 46%
VC (startup) 23% 30% 46%
VC (early stage) 23% 28% 51%
VC (expansion) 18% 28% 38%
VC (later stage) 18% 28% 38%
Angel (seed) 30% 45% 95%
Angel (startup) 28% 45% 83%
Angel (early stage) 28% 40% 70%
Angel (expansion) 18% 38% 47%

EARN YOUR EDGE
The Certified Merger &
Acquisition Advisor Certificate Program
DEC. 9-11, 2011 Pepperdine Universitys Graziadio School of Business and

Management, home of the Pepperdine Private Capital Markets
FEB. 13-17, 2012
or Project, is proud to host the CM&AA Certification Program.
dec 3-7, 2012 Who Should Attend:
Pepperdine University CPAs, M&A intermediaries, investment bankers, private equity

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Los Angeles, California
consultants, and financial advisors/executives focused on M&A
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CM&AA Self Study Materials Encourage ethical conduct and continued professional growth
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Sponsored by
PEPPERDIN
NEPRIVATECAP
REPORT20112012
BU
USINESSA
APPRAISEERSURVEEYINFORMATION
Accordingttothesurveyreespondentsthemostimportan ntissuesfacing privatelyheldbusinesstodayaredomestic

economicu uncertaintyand
daccesstocapittal.Lookingforrward12monthhs,however,thheyexpectgoveernmentregulations
andtaxestoemergeastheprevailingissuefacingprivattebusinessesfoollowedbydom mesticeconomicuncertainty.O Over
thelastsixmonthsrespon ndentsindicated dincreasesinccostofcapital,rriskpremiumsaandDLOMs,wo orsenedgeneral
businessco onditionsandap ppetiteforrisk..Theyalsoexpe ecttoseeincreeasingcostofcaapital,riskprem
miums,andsligh
htly
improvingggeneralbusinesssconditionsovverthenext12months.
Otherkeyffindingsinclude
e:
In ncomevaluation napproachistheoverwhelmingfavoriteamoongrespondennts
Re espondentsuse eanaveragerisskfreerateof3 3.9%andamarkket(equity)riskkpremiumof6.3%
Avveragelongterrmterminalgro owthisestimate edat3.2%
Th hemajorityofrrespondentsanticipateanincrreaseinbusinesssengagementssoverthenext12months
Operatio
onalandAsssessmentCh
haracteristicss
Mostofthe
ecompaniesvaluedbyrespondentshaveann
nualrevenuesfrrom$2,000,0000to$50,000,0000.
Figure 2. Annual Rev

venues of Co
ompanies Va
alued
0.7 62%
6 64
4% 63 %
0.6
0.5 42% 42%
%
0.4 30% 31%
0.3
0.2 15%
0.1
0
essthan
Le $50 million $5million $10miillion $50million $100million Greaterth
00,000 $2m han
$5
500,000 $1million $5m
million $10m million $50mmillion $100million $5000 $500million
million
Appraisers,,onaverage,ap
pplya50%weigghttoincomeaapproacheswheenvaluingapri vatelyheldbussiness.
Figu
ure 3. Usage of Valuation Approaches
s
17% Inco
omemethod(D
DCF,NPV,IRR)
12% 50%
%
Tran
nsactionmetho
od
Publiccompanym
method
21%
Otheer

2011|PEPPER
RDINEUNIVERSITYYGRAZIADIOSCHO
OOLOFBUSINESS ANDMANAGEMEENT.AllRightsReserved.|10
PEPPERDIN
NEPRIVATECAP
REPORT20112012
APPRAISER
RScont.
Respondenntsusingmultiplesbasedapproachesindicate
eapreferencefforusingrecastt(adjusted)EBITTDAmultiples((34%),
followedbyyrevenuemultiples(22%).
Figure 4. Usage
U of Mu
ultiples
Revenuem
multiple
5% 4%
Recast(ad
djusted)EBITDA
Amultiple
22%
2
17% EBITDA(u
unadjusted)mu
ultiple
6% EBITmultiiple
12% 34% Cashflowmultiple
Netincom
memultiple
Other
Responden ntsindicatedusinganaverageriskfreerateof3.9%,averageemarket(equitty)riskpremium
mof6.3%and
averagelon
ngtermgrowth hrateof3.2%.FFigure7indicatesconsiderableedifferencesinDLOMsacrosssizesofcompaanies
andsubjecttinterests.
Figure
e 5. Average Risk-Free Ra
ate, Market (equity)
( Risk
k Premium an
nd Long-Term
m Growth Ra
ate
0% 1% 2% 33% 4% 5% 6% 7%
Riskfreerate 3.99%
Market(equity)riskp
premium 6.3%
%
mterminalgro
Longterm owthrate 3.2%
Figure 6. Discount for Lack of Marketability

M y (DLOM) by Revenue Sizzes
0% 1
10% 20% 30% 4
40%
$100,000inrevenues 19.0%
34.0%
$1Minrevenues 17.0%
31.4%
$25Minrevenues 144.6%
27.8%
%
$250Minrevenues 11.1%
223.2%
Controlinterrest Minorrityinterest

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
APPRAISER
RScont.
Figu
ure 7. Explicit Forecast Period
P for Hig
gh-Growth C
Companies b
by Revenue S
Sizes (years))
$1million 5.6
$25million 5.8
$250million 5.5
Responden ntsindicatedinccreasesincosto
ofcapital,riskp
premiumsandD
DLOMs,andwo
orsenedgeneraalbusinesscond
ditions
overthelasstsixmonths.
Ta
able 2. Gene
eral Business
s and Industrry Assessme
ent: Today v
versus Six Mo
onths Ago
Stayed Net
Decrreased Decreas sed Increased Inccreased % %
Characteris
stics about the crease/
inc
signifficantly slighttly slightly sign
nificantly increa
ase decrease
same decrease
Number of engagements
e 3%
3 19%
% 27% 34% 17% 51%
% 22% 29%
Time to com
mplete a typical appraisal 1%
1 11%
% 65% 19% 4% 23%
% 13% 10%
Fees for serrvices 2%
2 18%
% 63% 15% 1% 16%
% 20% -4%
Competition 0%
0 3% 63% 27% 7% 34%
% 3% 30%
Cost of capital 1%
1 18%
% 53% 27% 2% 28%
% 19% 9%
Market (equity) risk premium
ms 0%
0 11%
% 57% 29% 3% 32%
% 11% 21%
DLOM 0%
0 6% 73% 18% 3% 21%
% 6% 16%
Company sp
pecific risk premiums 1%
1 3% 54% 37% 4% 42%
% 4% 37%
General bus
siness conditions
s 3%
3 32%
% 40% 20% 5% 25%
% 35% --10%
Responden ntsexpectincreasingcostofcaapital,riskprem
miums,andslighhtlyimprovingggeneralbusinesssconditionsovverthe
nextyear.
Table
e 3. General Business
B and Industry Assessment
A E
Expectations
s over the Ne
ext 12 Month
hs
Stay Net
Deccrease Decrease Increase In
ncrease % %
Characteris
stics about the inc
crease/
signifficantly slighttly slightly signnificantly increa
ase decrease
same decrease
Number of engagements
e 1% 5%
% 36% 49% 8% 56%
% 6% 51%
Time to com
mplete a typical appraisal 1% 10%
% 78% 9% 1% 10%
% 10% -1%
Fees for serrvices 0% 6%
% 63% 29% 1% 30%
% 6% 24%
Competition 0% 2%
% 72% 24% 1% 24%
% 2% 23%
Cost of capital 0% 7%
% 66% 24% 1% 25%
% 7% 19%
Market (equity) risk premium
ms 0% 7%
% 66% 25% 1% 26%
% 7% 19%
DLOM 0% 4%
% 78% 14% 1% 16%
% 4% 11%
Company-sp
pecific risk premiiums 1% 6%
% 64% 26% 1% 26%
% 7% 19%
General bus
siness conditions
s 3% 19%
% 51% 23% 2% 25%
% 22% 3%

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
APPRAISER
RScont.
Responden
ntsbelieveecon
nomicuncertain ntyisthemostiimportantissueefacingprivatelyheldbusinesssestoday.
Governmen
ntregulationsaandtaxesasacategoryisindiccatedasthemoostimportantemmergingissue.
Figure 8. Issues Facin

ng Privately--Held Busine
esses
0% 20% %
40% 60% 80% 100% 120
0%
To
otal 100%
665%
Economicuncerrtainty(domesstic)
15%
Accesstocap
pital
13%
1
Governmentregu
ulationsandtaaxes
3%
omicuncertain
Econo nty(internation
nal)
1%
Competittionfromforeiigntradepartn
ners
Inflattion 1%
Currentissue Emergiingissue

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
INV
VESTMEN
NTBANKEERSURVEEYINFOR
RMATION
N
Themajorittyofthe253re
espondentstotheinvestmentbankersurvey indicatedincreasingmarginprressureon
companiesoverthelastsixmonths.Theyyalsoreportedslightincreasessindealflow,rrelativelyflatleverageanddeaal
multiples,increasedprese worsenedbusin essconditions.Domesticecon
enceofstrategiccbuyers,andw nomicuncertainnty
wasidentiffiedasthemosttimportantissu
uefacingprivatelyheldbusineessestoday.Governmentregulationsandtaxes
wereindicaatedasthemosstimportantem mergingissue.
Otherkeyffindingsinclude
e:
Ap pproximately84%ofresponde entsexpecttocclosebetweenooneandfivedeealsinthenext12months.Thiisisup
fromtheroughlyy72%ofrespon ndentsinSpringg2011.
Th hetopthreereaasonsfordealsnotclosingwerevaluationga p(29%),econo omicuncertainty(18%),and

un nreasonablesellerorbuyerdeemand(17%).
Re espondentsinddicatedageneraalimbalancebe etweencompanniesworthyofffinancingandcaapitalavailablefor
thhesame.Thereisareportedshhortageofcapittalforthosecoompanieswithlessthan$10m millioninEBITDA
A,but
ageneralsurplussforcompaniesswith$25milliooninEBITDAorrmore.

Th hemostpopulaarvaluationapp proachesusedb byrespondentsswhenvaluingpprivatelyheldb businessesweree
in
ncomeandtransactionapproaches.
Operatio
haracteristicss
Approximately25%oftheerespondentsddidntcloseanydealsinthelasstsixmonths;557%closedbetw
weenoneandffive
deals,while
e9%closedmo
orethansix.
Figure 9. Private
P Busin
ness Sales Transactions
T Closed in th
he Last Six M
Months
3% 0
9%
6% 25% 1
6%
2
7%
7
3
%
24% 4
20%
5
6
Greaterthan6

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
IBANKEERcont.
Approximately20%ofallttransactionsclo
osedinthelastsixmonthsinvoolvedmanufactturing,followed
dby15%that
involvedbu
usinessservicess,and12%thatinvolvedwhole esaleandmanuufacturing.
Figure 10.
1 Business Types That Were Involve
ed in the Tra
ansactions C
Closed in the Last Six Mo
onths
Manufacturing
7%
8% Businessserrvices
20%
8% Wholesale&
&distribution
9% %
15% Healthcare
11% Informationtechnology
12%
11% Retail&con
nsumerservices
Financialserrvices
Basicmaterials&energy
Other

Themajorittyofdeals(58%
%)tooksixto12
2monthstoclo
ose.Rarelydidaanydealtakem
morethanoneyyeartoclose(4%
%).
Figure 11. Average Number of Month

hs to Close O
One Deal
4% 7% 24m
months 46m
months
9%
16% 22%
2
68m
months 810months
13%
29% 10122months 1218
8months
Greateerthan18mon
nths

Nearly7%ooftherespondeentsdontexpe
ecttocloseanydealsintheneext12months;884%expecttocclosebetweenone
andfivedeals,whileonly2%expecttoclosemorethan6deals.
Figure
F 12. Pri
rivate Busine
ess Transactiions Expecte
ed to Close iin the Next 1
12 Months
2%
7% 7%
% 0 1
12%
% 13%
2 3
16%
23%
4 5
20%
6 Greaterthan6

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
IBANKEERcont.
Approximately42.7%ofdealsterminated
dwithouttranssactingovertheepastyear.
Figu
ure 13. Perce
entage of Bu
usiness Sales
s Engageme
ents Terminated Without Transacting
g
42.7%
Trransacted
57.3
3% %Nottransacted
Topthreerreasonsfordealsnotclosing:vvaluationgapin
npricing(29%), economicunceertainty(18%),andunreasonaable
Seller/buye
erdemands(17%).
Figure 14. Reasons

s for Busines
ss Sales Eng
gagements N
Not Transacti
ting
Valuationggapinpricing
2%
6%
6% Economicuuncertainty
29%
8% Unreasonabblesellerorbu
uyerdemand
14%
1 Lackofcapiitaltofinance
18% Nomarketfforbusiness
17%
Insufficient cashflow
Sellermisreepresentationss
Other

Ofthosetraansactionsthattdidntclosedu
uetoavaluationgapinpricingg,approximatelly39%hadavaaluationgapinp
pricing
between21 1%and30%.
Figure 15. Valuatio

on Gap in Pric
cing for Tran
nsactions Th
hat Didnt Clo
ose
7% 010%
7% 8%
9% 1120%
29%
2130%
39%
% 3140%
4150%
Greaterthaan50%

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
IBANKEERcont.
Theweighttsofthevarioussvaluationapproachesusedb
byrespondents whenvaluingpprivatelyheldb
businessesincluded
34%forbotthincomeandtransactionapp proaches.
Figurre 16. Usage of Valuation

n Approache
es
%
11% 6% Incomeapprroach(DCF,NP
PV,IRR)
34%
15% Transactionaapproach
Publiccompaanyapproach
34% Assetbased approach
Other

RecastEBITTDAmultiples(3
39%)andEBITD
DAmultiples(21
1%)carriedthe mostweightw
whenusingmulttiplestodeterm
mine
valuations.
Figure 17. Usage of Mu

ultiples
Revvenuemultiplee
3%
RecastEBITDAm
multiple
7% 13%
%
12%
EB ITDAmultiple
5%
39% EB ITmultiple
21%
Casshflowmultipple(excludingEEBITDAorEBITT)
Neetincomemulttiple
Ot her

Averagede
ealmultiplesontransactionsfrromthepriorsixmonthsasobbservedbyresppondentsvaried
dfrom2to9.
Table
Ta 4. Media
an Deal Multtiples by EBIITDA Size off Company
Ba
asic
Retail and Wholesale
Business
B matterials Health Information Financial
EBITDA Manufacturing
g consumer & A
Average
services & care technology services
services distribution
en ergy
$1M 4 3.5 3.5 4 3
3.5 4 4.25 3.5 4
$5M 4.5 4 4.5 5 4 5 5.5 4 5
$10M 5.25 7 5.5 6 5 6 6 5 6
$25M 6 6.5 6 6 5 5.75 7.5 5.25 6
$50M 6.5 4.5 6.25 6 7
7.5 7 7.75 5 6
$100M 6.5 7.25 6 7.5 8 6.5 8.75 6.75 7

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
IBANKEERcont.
Averagetottalleveragemu
ultiplesobserve
edbyresponden
ntsvariedfrom
m1.5to6.
Table 5. Median Total Leve

erage Multiplles by Size o
of Company
Retail & Bassic

Wholesale
W & Business Health Information Financial
Manufacturing consumer materia
als & Av
verage
distribution services care technology services
services enerrgy
$1M 3 2.75 2.5 3 2.5

5 2 3 3 3
$5M 3 3.5 3 2.5 2.7
75 3 2.5 3 3
$10M 3 4 3 3 2.5
5 3 3.75 3.5 3
$25M 3.25 2.75 2.5 4 2.5
5 3.5 3 3.25 3
$50M 4.5 3 3 4.75 5 3.75 5 3.5 4
$100M 5.75 5 3.5 5.5 6 5 5 3.5 5
Averagetottalleveragemu
ultiplesobserve
edbyresponden
ntsvariedfrom
m1.5to6.
Tab
ble 6. Median
n Senior Leve
erage Multip
ples by Size o
of Company
Retail & Bassic

Wholesale
W & Bu
usiness Information Financial
Manufacturing consumer materia
als & Health care
re Av
verage
distribution se
ervices technology services
services enerrgy
$1M 2 2 1.75 1.75 n/a
a 1.5 2.5 2 2
$5M 2.5 3 2 2.5 2.5
5 2.75 2 3.5 3
$10M 2 3 2 2.75 2 2.5 2.5 3.5 3
$25M 3.25 3 2 4 2 2.75 1.5 3.5 3
$50M 3 3 2.25 4.5 5 2.5 n/a 5 4
$100M 3.75 3.25 3 4 n/a
a n/a n/a 4 4
Approximately37%ofbussinesssalestran
nsactionsclosed
dinthelast12 monthsinvolveedcontingenteearnouts.
Figu
ure 18. Comp
ponents of C
Closed Deals
s
40% 37%
32%
28% 27%
30%
20%
10%
0%
Contingenteaarnout Selllerfinancing//seller Low
weredmultipleeof Adjusstedamountoof
note EBITDA eequitysold

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
IBANKEERcont.
Approximately19%ofrespondentsdidntwitnessanyp
premiumpaidbbystrategicbuyers,while51%sawpremiums
between1%
%and20%.
Figure 19
9. Premium Paid
P by Strategic Buyers
s Relative to Financial Bu
uyers
2% No
3%
13% 19
9% Yes,110%more
13% Yes,1120%more
23% Yes,2130%more
28% Yes,3140%more
Yes,4150%more
Yes,>50%m
more
Responden ntsindicatedaggeneralimbalanncebetweenco
ompaniesworthhyoffinancingaandcapitalavailableforthesaame.
Thereisarreportedshortageofcapitalfo
orthosecompan
nieswithlessthhan$10millionninEBITDAbutageneralsurpllusfor
companieswith$25millio oninEBITDAormore.
Ta
able 7. Balance of Availab
ble Capital w
with Quality C
Companies
Capital
Comp panies Capital
Coompanies availablee
worthhy of available
worthy
w of GREATL LY
finan
ncing General exceeds Scorre
EBITDA fiinancing exceedss
GREA ATLY balance companies (-2 to 2)
exceed capital companie es
exceedd capital worthy of
available
a worthy oof
availlable financing
financingg
$1M 45
5% 31% 12% 8% 4% -1.04
4
$5M 20
0% 39% 22% 13% 6% -0.55
$10M 6%
% 31% 34% 22% 7% -0.07
$25M 6%
% 25% 36% 25% 8% 0.06
6
$50M 5%
% 19% 32% 26% 18% 0.33
3
$100M 2%
% 11% 29% 35% 23% 0.66
6
Respondenntsindicatedaggeneraldifficulttywitharrangin
ngseniordebtfforbusinessesw
withlessthan$$5millionin
EBITDA.
Tab
ble 8. How Diifficult to Arrrange Seniorr Debt for Tra
ansactions o
over the Pastt Six Months
Extremely Somewhat S
Somewhat Extremely Score
EBITDA Difficult Neutral Easy
difficult difficult easy e
easy (-3 tto 3)
$1M 38% 34% 14% 8% 6% 0% 1% -1
1.9
$5M 11% 19% 23% 22% 15% 8% 2% -0

0.6
$10M 1% 19% 22% 20% 15% 15% 9% 0.1
$15M 2% 15% 20% 15% 23% 12% 1

13% 0.3
$25M 3% 12% 14% 21% 14% 14% 2

22% 0.6
$50M 4% 12% 10% 18% 10% 14% 3

33% 0.9
$100M 7% 7% 16% 7% 13% 18% 3

33% 1.0
IBANKEERcont.

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
Approximately79%ofrespondentsagree ethatamongco ompaniesthatttheyhaveworkkedwith,seniorrmanagers,succhas

chiefexecu
utives,wouldbe
enefitfromadditionalleadersh
hipandskillstraaining.
Figure 20.
2 Would Se
enior Manage
ers and Chie
ef Executives s Benefit from
m Additionall Leadership and
Skillls Training?
?
4% 1%
Stronnglyagree
17% 30% Agree
Neuttral
49%
Disaggree
Stronnglydisagree
Accordingttorespondentsleadershipskillsarethemostimportantforsseniormanagem
menttohave.
Figure
e 21. Skills That
T Are Impo
ortant for Se
enior Manage
ement to Hav
ve
0% 10% % 40% 50% 60% 70% 80% 90% 10

% 20% 30% 00%
Leaderrship 94
4%
Understaandingcompettitiveenvironm
ments 88%
Strategicplan
nning 86%
Saalesandmarke
eting 69%
%
Knowled
dgeofbusinessandworldevvents 67%
Corporatefinance 60%
nspiringinnovaation
In 58%
Legalandreggulatoryknowle
edge 38%
Managgementaccoun
nting 37%
Quantitative
eanalysis/rese
earch 36%
Globalbusinessmanagem
ment 32%
Humanresou
urces 30%
Todayy Inthefutture

IBANKEERcont.

2011|PEPPER
Respondentsindicatedincreasesindealflow,marginpressureoncompanies,strategicbuyersmakingdeals,and
worsenedgeneralbusinessconditionsrelativetosixmonthsago.
Table 9. General Business and Industry Assessment: Today versus Six Months Ago
Stayed Net
Decreased Decreased Increased Increased % %
about the increase/
significantly slightly slightly significantly increase decrease
same decrease
Deal flow 9% 21% 23% 32% 14% 46% 30% 16%
Leverage multiples 8% 15% 47% 29% 0% 29% 23% 6%
Deal multiples 5% 19% 42% 31% 2% 34% 24% 9%
Amount of time to sell business 2% 12% 47% 25% 14% 39% 13% 26%
Difficulty financing/selling business 2% 13% 50% 23% 11% 35% 15% 20%
General business conditions 10% 42% 29% 17% 2% 19% 52% -33%
Strategic buyers making deals 3% 14% 35% 40% 7% 48% 17% 31%
Margin pressure on companies 2% 7% 34% 41% 16% 58% 9% 49%
Buyer interest in minority transactions 13% 20% 49% 16% 1% 17% 34% -16%

Duringthenexttwelvemonths,respondentsexpectfurtherincreasesindealflow,marginpressureoncompanies,
strategicbuyersmakingdeals,andworseninggeneralbusinessconditions.
Table 10. General Business and Industry Assessment Expectations over the Next 12 Months

Net
Decrease Decrease Stay about Increase Increase % %
increase/
significantly slightly the same slightly significantly increase decrease
decrease
Deal flow 2% 15% 27% 46% 9% 55% 17% 38%
Deal multiples 3% 24% 34% 39% 1% 39% 27% 13%
Difficulty financing/selling business 0% 24% 42% 26% 9% 35% 24% 11%
Strategic buyers making deals 2% 10% 40% 40% 8% 48% 12% 36%
Buyer interest in minority transactions 8% 16% 55% 19% 3% 22% 23% -1%
IBANKERcont.

PEPPERDIN
NEPRIVATECAP
REPORT20112012
Responden
ntsbelieveecon
nomicuncertain ntyisthemostiimportantissueefacingprivatelyheldbusinesssestoday.
ntregulationsaandtaxesareindicatedasthemostimportanttemergingissuue.
Governmen
Figure 22. Issues Faciing Privately

y-Held Busin
nesses
0
0% 5% 10%
1 15% 220% 25% 30% 35% 40% 45% 50%
Econo
omicuncertaintty(domestic) 43%
29%
Accesstocapital 32%
117%
Governmentregulatio
onsandtaxes 11%
24%
Economicuncertainty(international) 10%
15%
%
Compettitionfromfore
eignpartners 2%
9%
Other 2%
2%
Inflation 0%
4%
Currentisssue Emerggingissue

2011|PEPPER

PEPPERDIN
NEPRIVATECAP
REPORT20112012
BROKERSURV
VEYINFO
ORMATIO
ON
Approximately39%ofthe e99participanttsinthebrokerrsurveysaidth eyexpecttoclo

osemorethan fivedealsinthhenext
12 months. This is up fro
om 25% of respondents in th
he Spring 20111 report. Respo
ondents believee domestic ecoonomic
uncertaintyyisthemost im mportantissue facingprivatellyheldbusinesssestoday.Govvernmentregulationsandtaxesand
domesticeconomicuncerttaintyareindicatedasthemo ostimportantem mergingissues..
Otherkeyffindingsinclude e:
Th hemajorityofd deals(87%)tooklessthan1yeeartoclosewithhthelargestco
oncentrationbeeingtheinsixto
o
eightmonthcate egory.Another9%tookaboutayearandahaalfandrarelyddidadealtakem morethanoneaanda
haalfyearstoclosse.

Ap pproximately45%ofresponde entsexpectworseningbusinesssconditionsinnthenext12mo onths.Respond
dents
alsofurtherincre easesindealflo
ow,marginpresssureoncompaanies,andstrattegicbuyersmaakingdeals.
To opthreereason nsfordealsnotclosing:valuationgapinpricinng(24%);lacko
ofcapitaltofinaance(23%);
ecconomicuncerttainty(19%).
Operatio
haracteristicss
Approximately25%oftheerespondentsddidntcloseanydealinthelasttsixmonths;577%closedbetw
weenoneandfivve
deals,while
e9%closedmo
orethansix.
Figure 23. Private Busiiness Sales Transactions

T s Closed in th
the Last Six M
Months
2% 0%
6%
6 5%
19
9% 0 1
8%
16% 20% 2 3
24% 4 5
6 Greaterthan
n6

Approximately20%ofallttransactionsclo
osedinthelastsixmonthsinvoolvedmanufactturingfollowed
dby15%that
involvedbu
usinessservicessand12%thatiinvolvedwholesaleandmanuffacturing.
Figure 24. Private Business

B Salles Transacttions Expecte
ed to bClose
e in the Next Twelve Mon
nths
3%
0 1
6% 8%
16%
%
20% 2 3
11%
4 5
6%
16%
14% 6 710
Greaterthan10

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
BROKEERcont.
Approximately58%ofrespondentsarep
planningtoclose
ebetweenoneandfivebusineesssalestransaactionsintheneext12
months.
Fig
gure 25. Priva
ate Business
s Sales Trans
sactions Exp
pect to Close
e in the Nextt 12 Months
3%
3% 4% 0 1
4% 6% 8%
5%
% 2 3
20%
%
11%
1 4 5
6% 6 7
16%
14%
8 9
10 Greaterthan10
Themajorittyofdeals(51%
%)tookfourtoe
eightmonthsto
oclose.
Figure 26. Average Number of Month

hs to Close O
One Deal
24mo
onths
4% 7%
9% 46mo
onths
22%
16% 68mo
onths
810m
months
13%
1012months
29%
1218months
Greaterrthan18montths
Approximately46%ofdeaalsterminatedw
withouttransacctingovertheppastyear.
Figu
ure 27. Perce
entage of Bu
usiness Sales ents Terminated Without Transacting
s Engageme g
46% Transacted
54%
Nottransacted

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
BROKEERcont.
Topthreerreasonsfordealsnotclosing:vvaluationgapin
npricing(24%), lackofcapitalttofinance(23%
%),andeconom
mic
uncertaintyy(19%).
Figure 28. Reasons

s for Busines
ss Sales Eng
gagements N
Not Transacti
ting
2% Valuationgap inpricing
5%
5 Lackofcapitalltofinance
7% 24%
7%
Economicunceertainty
13
3%
Unreasonablesellerorbuyerdemand(non
nprice)
23%
19% Insufficientcashflow
Nomarketforrbusiness
Sellermisrepreesentations
Other
Ofthosede
ealsthatdidntcloseduetoavvaluationgapin
npricing,approoximately42%hhadavaluation
ngapinpricing
between211%and30%.
Figure 29. Valuatio

on Gap in Pric
cing for Tran
nsactions Th
hat Didnt Clo
ose
2%
5% 6%
23% 23% 010% 11
120%
21130% 31
140%
42%
41150% Grreaterthan50%
%

popularvaluatio
Themostp onapproachesu
used(byweightt)byrespondenntswhenvaluinngprivatelyheldbusinessesw
were
incomeand
dtransactionap
pproaches.

n Approache
es
13% Incom
meapproach((DCF,NPV,IRR)
5% 30%
13% Tran sactionapproaach
5% Publiiccompanyap
pproach
Assetbasedapproaach
34%
Costsstocreateapp
proach
Otheer

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
BROKEERcont.
MostofresspondentsuserrecastEBITDAm
multiples(34%)andcashflow multiples(23%
%).

ultiples
5%
4% RecaastEBITDAmultiple
7%
% 34%
12% Cash
hflowmultiplee
EBITTDAmultiple
15% Reveenuemultiple
23% Otheer
Netincomemultip
ple
EBITTmultiple
Averagerevvenuemultiplesondealsobse
ervedbyrespon
ndentsvariedfrrom1to3.
Table 11.
1 Median Re
evenue Deall Multiples by
y Revenue S
Size of Comp
pany
Retail & B
Basic
Wholesale & Business Health Information Financial
Revenue Manufacturing consuumer matterials & Ave
erage
distribution services care technology services
servic
ces en nergy
$100,000 1.9
1 1.4
4 1.3 1.5 2 2 2 1 2
$500,000 1 1.7
7 1.4 1.1 2 2.1 2.1 1.2 2
$1M 2 1.6
6 0.8 1.4 2.1 0.8 2.4 1.8 2
$5M 1.4
1 1.5
5 1 1 2 1.2 3 1.4 2
$10M 1.6
1 2 3 1 2.4 3 2.8 2.7 2
Greater than
n $10M 2.3
2 2 3 2 3 2.1 3 2.8 3
AverageEB
BITDAmultiplesondealsobserrvedbyrespond
dentsvariedfroom2to7.
Table 12.
1 Median EBITDA
E Deal Multiples by
y Revenue Siize of Compa
any
Retail & Basicc

Wholesale & Bussiness Health Information Financial
Revenue Manufacturing consumer materialss & Ave
erage
distribution serrvices care technology services
services energyy
$100,000 3 2 3.5 3 2.75 5.5 5 3.25 3

3.5
$500,000 3.25 3 3.25 3 4 4 3 3.75 3
3.4
$1M 3.5 3 3 3.5
3 3.5 4 4.75 5 3
3.8
$5M 4.5 4 4 4 4.5 7 5.5 2.5 4
4.5
$10M 4.75 5 4 4.75
4 7 6 7 5 5
5.4
BROKEERcont.

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
Approximately61%ofbussinesssalestran
nsactionsclosed
dinthelast12 monthsinvolveedsellerfinancingorsellernote.
Figu
ure 32. Comp
ponents of C
Closed Deals
s
70% 61%
60% 49%
50%
36%
40%
30%
20% 15%
10%
0%
SellerFinancing
S g/Seller Contingentearn
nout Low
wereddealpricce Lowerredamountoff
Note eq
quitysold
Respondenntsindicatedaggeneraldifficulttywitharrangin
ngseniordebtfforbusinessesw
withlessthan$$1millionin
revenues.
Figure 33. How Difficult

D to Arrrange Senio
or Debt for Trransactions over the Pas
st Six Months
s
Revenu
ue Extremmely Somewhat S
Somewhat Extremely Score e
Difficult Neutral E
Easy
size difficu
ult difficult easy eassy (-2 to 2
2)
$100K 71%
% 8% 3% 16% 0% 3% 0%
% -1.26
$500K 41%
% 23% 9% 11% 7% 9% 0%
% -0.52
$1M 31%
% 27% 10% 16% 10% 6% 0%
% -0.33
$5M 14%
% 22% 19% 17% 14% 14% 0%
% 0.36
$10M 12%
% 19% 27% 12% 15% 8% 8%
% 0.54
$15M 13%
% 9% 22% 9% 26% 9% 13% 1.04
$25M+ 12%
% 12% 18% 12% 29% 0% 18% 1.06

chiefexecu
utives,wouldbe
Figure 34.
3 Would Se
enior Manage
ers and Chie
Skillls Training?
?
5% Stronglyagreee
23% 36%
Agree
Neutral
36%
Disagree

BROKEERcont.

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
Accordingttorespondents,,leadershipskills,strategicplaanning,andundderstandingcom
mpetitiveenvironmentsareth
he
mostimporrtantforseniorrmanagementttohave.
Figure
e 35. Skills That
T Are Impo
ortant for Se
enior Manage
ement to Hav
ve
0% 10
0% 20% 30% % 60% 70% 80% 90% 1
% 40% 50% 100%
Leadeership 86%
75%
Strategicplaanning 86%
77%
Understtandingcompe etitiveenvironmments 73% 86%
Salesandmarketing 58% 73%
Knowleedgeofbusineessandworldeevents 62%
59%
Corporatefinance 488% 56%
Inspiringinnovvation 53%
64%
Manaagementaccou unting 41%47%
Humanreso ources 42% 52%
Legalandre
egulatoryknowwledge 40%
41%
Quantitativveanalysis/ressearch 277%
41%
266%
Globalbuusinessmanage ement 55%
4%
%
Other 6%
6
Todayy Inthefutture
Responden
ntsbelieveecon
nomicuncertainntyisthemostiimportantissueefacingprivatelyheldbusinesssestoday.
Governmen
ntregulationsaandtaxesandeconomicuncerttaintyareindiccatedasthemo ostimportantemmergingissues..

y-Held Busin
nesses
0% 10% 20% 30% 40% 50% 60%
Ecconomicuncerttainty(domesttic) 48%
27%
Accesstocapital 27%
16%
%
Econo
omicuncertaintty(internation
nal) 10%
16%
%
Govvernmentregulationsandtaxxes 8%
27%
Competitiionfromforeiggntradepartne
ers 0%
7%
Oth
her 7%
%
5%
BROKEERcont.

2011|PEPPER
Comparedtosixmonthsago,respondentsindicatedincreasesindealflowanddifficultyfinancingorsellingbusiness,
increaseinmarginpressureoncompaniesanddeterioratedgeneralbusinessconditions.Respondentsalsoindicated
decreaseddealmultiples.
Table 13. General Business and Industry Assessment: Today Versus Six Months Ago
Stayed Net
about the increase/
same decrease
Deal flow
11% 10% 32% 36% 11% 47% 21% 26%
Ratio of businesses sold/total listings
13% 4% 49% 28% 6% 33% 17% 16%
Deal multiples
3% 23% 59% 13% 3% 16% 26% -10%
Business exit opportunities
6% 26% 30% 33% 6% 39% 31% 7%
Amount of time to sell business
0% 11% 39% 38% 11% 49% 11% 38%
Difficulty selling business
4% 16% 36% 24% 20% 44% 20% 24%
Business opportunities for growth
4% 20% 42% 28% 6% 33% 25% 9%
General business conditions
15% 33% 29% 22% 0% 22% 49% -26%
Margin pressure on companies
1% 8% 37% 39% 14% 54% 10% 44%
Duringthenexttwelvemonths,respondentsexpectfurtherincreasesindealflow,marginpressureoncompanies,and
worseninggeneralbusinessconditions.
Net
increase/
decrease
Deal flow 10% 14% 34% 32% 10% 42% 24% 19%
Ratio of businesses sold/total listings 12% 12% 47% 27% 2% 29% 24% 5%
Deal multiples 7% 24% 59% 9% 2% 10% 31% -21%
Business exit opportunities 8% 28% 30% 30% 3% 33% 37% -3%
Difficulty selling business 2% 15% 37% 25% 20% 46% 17% 29%
Business opportunities for growth 5% 24% 37% 29% 5% 34% 29% 5%


PEPPERDIN
NEPRIVATECAP
REPORT20112012
LIMITEDP
L PARTNER
RSURVEY
YINFORM
MATION
Approximately20%ofthe e71respondenttsinthelimited dpartnersurveeyreportedbuyyoutprivateequityasbeingth hebest

risk/return tradeoff inve estment class, followed by direct
d investmeents at 19%. W
When asked aabout which in ndustry
currently offers
o the best risk/return traadeoff, 48% off respondents reported healtth care, followed by 36% rep
porting
information ntechnology.C Confidenceinth heenergyindusstryisdownto330%from44%intheSpring20011report.Oth herkey
findingsincclude:
Ap pproximately26%ofresponde entsreportedtheirassetcateggorybeinglessthan$50millio on,while23%w were

beetween$50milllionand$500m million.

Onaveragerespo ondentstargettoallocate20% %oftheirassetsstoventurecappital,19%tobuuyoutprivateeqquity
annd15%todirecctinvestments.Respondentse expectthehigheestreturnsof220%frominvesttmentsinventu ure
caapital,buyoutpprivateequityanddirectinvesttments.
Re espondentsind dicatedincrease edallocationtodirectinvestm entsandprivatteequityanddeecreasedallocaation

tooallotheraltern
nativeassetsin nthelastsixmo
onths.Theyalsooreportedworssenedbusinessconditionsbutt
in
ncreasedexpecttedreturnsonn newinvestments.
Re espondentssee ebestdomesticcopportunitiesinCalifornia,TeexasandNewEEnglandstates.Theyalsoexpeect
in
ncreasingallocationtoalternattiveassets,sligh htlyimprovingbbusinesscondittions,increaseindirectinvestm ments
anndfurtherincreeaseinexpected dreturns.
Operatio
haracteristicss
Approximately26%ofrespondentsreporrtedtheirassettcategorybeingglessthan$50million,while223%werebetw
ween
$50millionand$500million.
Figure
F 37. As
ssets under Managemen
M t or Investab
ble Funds

15% Leessthan$50million
26%
9% $550million$50
00million
$5500million$1
1billion
18%
23% $11billion$5billion
8%
$55billion$10b
billion
Grreaterthan$10
0billion

Responden
ntsreportedontheir%oftotalassetallocatio
onsforAlternaativeAssets.
Figure
e 38. Currentt and Target Asset
A Alloca
ations for "A
Alternative As
ssets" (% of total portfollio)

100%
52% 55%
50%
0%
Currentalloccation Targgetallocation

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
LPcont.
Onaverage e,respondentsttargettoallocate20%oftheirrassetstoventuurecapital,19%
%tobuyoutprivvateequity,and
d15%
todirectinvvestments.

Figurre 39. Curren
nt Target Ass
set Allocation
n
Venturecapital 20%
Privateequitybuyo out 19%
%
Diirectinvestments 155%
Privateequitygrowwth 11%
Realestatefu
und 9%
Hedgefuund 8%
Secondaryfun nds 5%
Privateequitydistresssed 4%
Mezzanine 3%
Fundoffunnds 2
2%
Onaverage
erespondentse
expectthehighe
estreturnsfrom
minvestments inventurecapital,buyoutprivvateequityanddirect
investmentts.
Fiigure 40. Ann

nual Return Expectations
E s for New Inv
vestments
25%
20% 20%
% 20%
20% 18% 18%
%
15% 15% 15%
%
15% 14% 13% %
12%
10%
5%
0%

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
LPcont.
Approximately20%ofrespondentsreporrtedbuyoutprivateequityasbbeingthebestrisk/returntrad
deoffinvestmeent
class,follow
wedbydirectin
nvestmentsat1
19%.
Figure 41. Asse

ets with the Best
B Risk/Re
eturn Trade-o
off Currently
Privateeequitybuyo
outs
Directinvestments
6% 4% 20%
6% Ventu recapital
7%
Privateeequitygrow
wth
7%
%
19% Privateeequitydistrressed
7%
Secon daryfunds
11%
% 13%
Hedgeefund
Mezzaanineinvestmeent
Realestatefunds
Fundooffunds
Whenaskedaboutwhichindustriescurreentlyoffertheb
bestrisk/returnntradeoffs,48%
%ofresponden
ntsreportedheealth
care,follow
wedby36%reportinginformattiontechnologyy.
Figure
e 42. Industry
y with the Be
est Risk/Retu
urn
60%
48%
50%
40% 36% 34%
%
30%
30% 24%
20% 12% 10% 10
0% 8%
10%
0%

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
LPcont.
Inregardto
othegeographicregionswiththebestrisk/re
eturntradeoffss,57%ofrespondentsreporteedNorthAmericca,
followedbyytheLatinAme
erica(41%),and
demergingAsiaa(35%)areas.
Figure
e 43. Geograp
phic Regions
s of the Worlld Offering th
he Best Risk
k/Return Trad
deoff Curren
ntly
60% 57%
50%
41%
40% 35%
30%
2
20%
20% 166%
%
10%
10%
4% 2%
0%
North Latin Em
merging Deve
eloped Wesstern Other Centraland Otherr
America America
A Asia Asia
A Euroope emergging Easterrn
markkets Europpe
Accordingtto38%ofrespo ondentsthegeo
ographicregionwithbestrisk//returntradeofffsisSiliconValleywithanotheer24%
selectingBaayArea,followedbyTexas(35
5%),andNewEngland(27%).
Figure 44. Geographic

G Regions
R of the
t USA with
h the Best Ris
sk/Return Cu
urrently
40% 38%
35%
35%
30% 27%
24%
25% 22%
19%
20%
15% 11%
10%
5%
0%
SiiliconValley Texas NewEngland BayArea NewYork Southern Washingto
on
Metro California DC
LPcont.

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
Accordingttorespondents,,thegeneralpaartneristhemo
ostimportantfaactorwhenevaaluatinginvestm
mentfollowedb
by
specificstraategyandhisto
oricalfundperfo
ormance.
Table 15
5. Importance
e of Factors When Evalua
ating

Of
O little Mod
derately ery
Ve Scoore
Characteris
stics Un
nimportant Imp
portant
importance Im
mportant impo
ortant (1 to
o 5)
General pa
artner 2% 2% 2% 3
37% 58
8% 4.4
46
Specific strategy 0% 0% 8% 4
40% 52
2% 4.4
44
Historical fund performance on all
2% 2% 2
21% 4
42% 33
3% 4.0
02
funds
Returned capital from most m recent
22% 0% 0% 2 2% 56
6% 3.5
54
fund (distribution to paid-in or DPI)
Residual value
v of most recent fund
4% 10% 3
31% 4
40% 15
5% 3.4
46
(residual va
alue to paid-in orr RVPI)
Gut feel/ins
stinct 6% 8% 2
29% 5
50% 8%
% 3.3
31
Specific loc
cation 6% 12% 3
38% 3
35% 10
0% 3.17
Other - ple
ease specify 4% 27% 2
29% 2 9% 12
2% 3.8
89

chiefexecu
utives,wouldbe
Figure 45.
4 Would Se
enior Manage
ers and Chie
Skillls Training?
?

4% 8% Stronglyagreee
36%
Agree
52%
5 Neural
Disagree
LPcont.

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
Accordingttorespondents,,importantskillstohaveinseniormanagemeentareleadersship,strategicp
planning,and
dingcompetitiveenvironmentss.
understand
Figure
e 46. Skills That
T Are Impo
ortant for Se
enior Manage
ement to Hav
ve

0% 20% 400% 60% 80% 100% 12
20%
Leaderrship 91% 100%

Strategicplan
nning 79% 89%
ments 86
6%
%
83%
Saalesandmarke
eting 64%71%
Knowled
Humanresou
urces 61%
57%
%
ment 61%%
72%
nspiringinnovaation
In 57%% 79%
edge 54%
49%
45%
Quantitative
eanalysis/rese
earch 39%
42%
Managgementaccoun
nting 32 %
30%
Todayy Inthefutture
Responden ntsindicatedinccreasedallocationstodirectin
nvestmentsanddprivateequityanddecreased dallocationstoall
otheraltern
nativeassetsin
nthelastsixmo
onths.Responde entsalsoindicaatedincreasedeexpectedreturn
nsonnewcapittal
deployedbbutworsenedge eneralbusinesssconditions.
Ta
able 16. Gene
eral Business and Industtry Assessm
ment: Today v
versus Six M
Months Ago
Stayed Net
Deecreased Decre eased Increased In creased % %
Characteris
stics about the
e in
ncrease/
significantly sligh
htly gnificantly increa
slightly sig ase decrease
same decrease
Allocation to
o venture capital
6% 15%
% 69% 10% 0% 10%
% 21% -10%
Allocation to
o private equity
0% 11%
% 70% 15% 4% 19%
% 11% 9%
Allocation to
o mezzanine
4% 22%
% 67% 7% 0% 7%
% 27% -20%
Allocation to
o hedge funds
11% 16%
% 68% 5% 0% 5%
% 27% -22%
Allocation to
o secondary fund
ds
8% 8%
% 77% 5% 3% 8%
% 15% -8%
Allocation to
o real estate fund
ds
8% 10%
% 74% 5% 3% 8%
% 18% -10%
Direct investtments
4% 6%
% 47% 23% 19% 43%
% 11% 32%
General bus
siness conditions
s
4% 43%
% 35% 17% 0% 17%
% 48% -30%
Expected returns on new capital
deployed 2% 19%
% 38% 38% 4% 42%
% 21% 21%

LPcont.

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
Responden
ntsexpectfurtherincreasesinallocationtodirectinvestmenntsandprivateeequity,aswellasrealestatefu
unds.
Table 17. General Business an

nd Industry Assessment
A Expectation
ns over the N
Next 12 Month
hs
Net
Decrease Decreaase Stay about Increase Inccrease % %
Characteristtics ncrease/
in
signifficantly slightly the same slightly sign ificantly increasse decrease
d
decrease
Allocation to
o venture capital
0%
0 13%
% 79% 8% 0% 8% 13% -4%
Allocation to
o private equity
0%
0 6% 81% 11% 2% 13% 6% 6%
Allocation to
o mezzanine
2%
2 14%
% 74% 7% 2% 9% 16% -7%
Allocation to
o hedge funds
5%
5 5% 78% 8% 3% 11% 11% 0%
Allocation to
o secondary fund
ds
5%
5 13%
% 68% 8% 5% 13% 18% -5%
Allocation to
o real estate fund
ds
5%
5 13%
% 56% 23% 3% 26% 18% 8%
Direct investtments
2%
2 4% 57% 26% 1
11% 37% 7% 30%
General bus
siness conditions
s
2%
2 22%
% 40% 30% 6% 36% 24% 12%
Expected returns on new capital
deployed 2%
2 13%
% 54% 26% 4% 30% 15% 15%
Respondenntsbelieveaccesstocapitalandeconomicunccertaintyarethhemostimportantissuesfacin
ngprivatelyheld
businessestoday.Governmmentregulation nsandtaxesan
ndeconomicunncertaintyareinndicatedasthemostimportannt
emergingisssues.
Figure 47
7. Issues Faciing Privately
y-Held Busin
nesses

0% 5%
5 10% 15% 220% 25% 30% 35%
Accesstocapital 30%
13%
33%
29%
Econo
nal) 17%
8%
ers 2%
4%
Inflation 2%
12%
her
Oth 4%
2%
Currentisssue EmerggingIssue

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
ANGELIN
A NVESTORSURVEYINFORMATION
Approximately14%ofthe e93respondenttstotheangeliinvestorsurveyyplantoinvest outsideoftheU.S.overtheneext12

months,themajority(56% %)ofresponden ntsplantomakebetweenoneeandfiveinvesttments.Otherkkeyfindingsincclude:
Ap pproximately30%ofresponde entsbasevaluationsonabasiccmethod(quickestimate)whenvaluingprivaately
heeldbusinesses.

Th hetypesofbusinessesrespond dentsplantoin
nvestinoverneext12monthsaareverydiverseewithover34% %
taargetinginformationtechnologgyandanother22%planningttoinvestinheaalthcare.

Re espondentsind dicatedasharpincreaseindem ofangelindustryy,
mandforangelccapital,andinccreasesinsizeo
foollowoninvestmments,andexp pectedreturnsoonnewinvestm ments.Theyalso oreportedincreeasedqualityoff
coompaniesseekinginvestmentssandtimetoexxitdeals,decreaasedopportuniitiestoexit,wo orsenedgenerall
buusinessconditio
onsandappetitteforrisk.
Re espondentsexitstrategiesthaatincludesellinngtoaprivateccompanytotal334%,whileanotther34%of
reespondentsplan ntoselltoapu
ubliccompany.
Operatio
haracteristicss
Approximately47%ofrespondentsmade
eeitheroneortwoinvestmenntsoverthelasttsixmonths.
Figure
e 48. Total Nu
umber of Inv
vestments Ma
ade in the La
ast Six Montths

7% 0 1
2% %
12% 12%
%
8% 25%
2 3
15%
19% 4 5
610 M
Morethan10
Figure 49
9. Number of Follow-on Investments
I Made in the
e Last Six Mo
onths

4% 1% 5%
4% 0 1
23%
%
18%
2 3
20%
25
5% 4 5
610 Morethan10

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
ANGELcont.
Themajoritty(56%)ofresp
pondentsplanttomakebetwee
enoneandfiveeinvestmentso
overthenext122months.
Figure 50. Numberr of Total Inve

estments Pla
anned over N
Next 12 Montths
8% 0 1
18% 15%
18% 2 3
23%
2
7% 4 5
5% 6%
610 Mo
orethan10
Figure 51
1. Number off Follow-on In
nvestments Planned ove
er Next 12 Mo
onths
6% 21%
% 0 1
14%
10%
20% 2 3
1% 7%
21% 4 5
610 M
Morethan10
Thetypeso
ofbusinessesre
espondentsplan
ntoinvestinovvernext12monnthsareverydiversewithoveer34%targetingg
information
ntechnologyanndanother22%
%planningtoinvestinhealthccare.
Figure 52
2. Type of Bu
usiness for In
nvestments P
Planned ove
er Next 12 Mo
onths
1%
3% Inform
mationtechno
ology
5% Healtthcare
7% 34%
9% Basic materials&en
nergy
9%
9 Retail&consumersservices
Businnessservices
10%
22% Manuufacturing
Finanncialservices
Whollesale&distrib
bution
Otherr

2011|PEPPER
ANGELcont.
Respondentsreportedonavarietyofstatspertainingtotheirinvestments.
Table 18. General Information on Investments by Company Stages
Seed Startup Early stage Expansion
Number of investments made in last six months
1st quartile 1 1 1 1
Median 1 2 1 2
3rd Quartile 4 2 2 3
Average size of investment ($ thousands)
1st quartile $25 $75 $75 $75
Median $150 $150 $150 $150
3rd quartile $250 $150 $250 $250
Average % of total equity purchased (fully diluted basis)
1st quartile 5% 4% 3% 1%
Median 15% 6% 6% 2%
3rd quartile 25% 20% 10% 9%
Total EXPECTED returns (gross cash on cash pretax IRR) on new investments (%)
1st quartile 30% 28% 28% 18%

Median 45% 45% 40% 38%
3rd quartile 95% 83% 70% 58%
Expected time to exit (years)
1st quartile 4 4 3 3
Median 5 5 4 4
3rd quartile 5 5 5 4
Average company pre-money value ($ millions)
1st quartile 0.45 0.65 1.5 0.95
Median 1.5 1.5 2.5 2.5
3rd quartile 1.5 2.5 4.5 10
Average company value at time of investment (post-money $ millions)
1st quartile 0.750 1 2 1.5
Median 1.5 2 3 3.5
3rd quartile 3.5 4.5 7 8

PEPPERDIN
NEPRIVATECAP
REPORT20112012
ANGELcont.
Responden ntsreportedonwheretheyplaantoinvestove
erthenext12m
months.Theressultsreflectinveestmentthrougghout
theU.S.,14
4%ofrespondentsareplanningtoinvestoutssideoftheU.S.
Figure 53.. Geographic

c Location off Planned Inv
vestment ov
ver Next 12 M
Months

SouthhernCalifornia
14% 17
7% Texass
8% NewEEngland
7% SiliconnValley
39% 6% NewYYorkMetro
4%
% 3%
2% WashhingtonDC
BayAArea
AllothherUS
OutsiddeofUS
Approximately35%ofrespondentsdontthavegeograph
hicalrestrictionnsfortheirfutureinvestmentss.
Figure
e 54. Geograp
phical Limit for Investme
ent
15% 2houurdrive
35%
12%
%
4houurdrive
18%
% State//province
21% Regioon
Noreestrictions
Approximately30%ofrespondentsbasevaluationsonaabasicmethod (quickestimatee)whenvaluinggprivatelyheld
d
businesses..Only14%ofre
espondentsuse
eanincomeapp
proach.

n Approache
es
Basic method(quickkestimate)
5% 14% 30% Transaactionapproacch
7%
% Incom
meapproach(D
DCF,NPV,IRR)
9%
%
Publicccompanyapp
proach
14% 21%
Costs tocreateapprroach
Assetbasedapproacch
Otherr
ANGELcont.

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
Responden
ntsreportedonitemsrequired
dtocloseonedeal.
Figure
e 56. Items Required
R to C
Close One De
eal
50
40
4
40
30
20
20
8 6.5 10
0
10 5 3
1 2 1 1 2
0
Businessplanssor Meettingswithprincipals Propossallettersorteerm ofintentsigneed
Letterso
morandumsre
mem eviewed conducted sheetsissued
1stQuartile Median 3rdQuartile
Responden ntsexitstrategiiesthatincludesellingtoaprivvatecompanyttotal34%,whileeanother34%ofrespondentssplan
toselltoapubliccompanyy.
Figure
e 57. Exit Plan
ns for Portfo
olio Companiies
3%
5% 5% Sellttoaprivatecom
mpany
5%
34% Sellttoapubliccom
mpany
7%
Sellttoprivateequittygroup
7%
Liquidateorbankru
upt
IPO
34%
SellttoaVC
Manaagementbuyo
out
Otheer

chiefexecu
utives,wouldbe
Figure 58.
5 Would Se
enior Manage
ers and Chie
Skillls Training?
?

5% 5%
Strronglyagree
41%
Aggree
50% Neeutral
Dissagree
ANGELcont.

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
Accordingttorespondents,,leadershipskills,understandingcompetitiveeenvironmentssandstrategicp
planningarethe
Figure
e 59. Skills That
T Are Impo
ortant for Se
enior Manage
ement to Hav
ve
Leaderrship 83% 98%

ments 8
74% 3%
Saalesandmarke
eting 2%
74%82
Strategicplan
nning 71%77%
In
nspiringinnovaation 64%
63%
Knowled
54%
39%
Quantitative
eanalysis/rese
earch 333%
3 3%
edge 30%%
3 3%
27%
Humanresou
urces 36%
Managgementaccoun
nting 24%30%%
17%
ment 41%
8%
%
Other
O 6%
%
Todayy Inthefutture
Responden ntsindicatedassharpincreaseindemandforaangelcapital,inncreasesinsizeofangelindusttry,followon
investmenttsandexpected dreturnsonnewwinvestments.Theyalsorepoortedincreaseddqualityofcom mpaniesseekingg
investmenttsandtimetoe exitdeals,decre
easedopportun
nitiestoexit,woorsenedgeneraalbusinesscond ditions,andapppetite
forrisk.
Ta
able 19. Gene
ment: Today v
versus Six M
Months Ago

Stayed Net
Decrreased Decreas sed Increased Incrreased % %
about the inc
crease/
signifficantly slightly slightly sign ificantly increasse decrease
same decrease
Demand for angel capital
2%
2 2% 32% 28% 3
37% 65% 3% 62%
Size of ange
el finance industrry
3%
3 25%
% 25% 25% 2
22% 47% 28% 19%
Quality of co
ompanies seeking
investment 0%
0 14%
% 43% 34% 9% 43% 14% 29%
Follow-on in
nvestments
0%
0 17%
% 43% 28% 1
12% 40% 17% 23%
Average investment size
3%
3 23%
% 45% 26% 3% 29% 26% 3%
Exit opportunities
6%
6 33%
% 43% 13% 5% 17% 40% --22%
Time to exit deals
3%
3 14%
% 34% 27% 2
22% 48% 17% 31%
Expected returns on new inv
vestments
2%
2 9% 60% 25% 5% 29% 11% 18%
Value of porrtfolio companies
s
2%
2 28%
% 34% 34% 3% 37% 29% 8%
General bus
siness conditions
s
20
0% 31%
% 25% 20% 5% 25% 51% --26%
Appetite for risk
15
5% 38%
% 31% 11% 5% 15% 54% --38%
ANGELcont.

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
Responden
ntsexpectfurtherincreasesinbusinesscharacteristicsexcepptgeneralbusinnessconditions.

A Expectation
ns over the N
Next 12 Month
hs
Stay Net
Decrease Decreaase Increase Inccrease % %
about the inc
crease/
signifficantly slightly slightly sign ificantly increasse decrease
same deccrease
Demand for angel capital 0%
0 0% 20% 56% 2
23% 80% 0% 80%
Size of ange
el finance industrry 5%
5 8% 35% 41% 1
11% 52% 13% 40%
Quality of co
ompanies seeking
5%
5 9% 48% 34% 3% 38% 14% 23%
investment
Follow-on in
nvestments 0%
0 14%
% 38% 41% 6% 48% 14% 33%
Average investment size 0%

0 17%
% 48% 32% 3% 35% 17% 17%
Exit opportunities 6%
6 14%
% 47% 27% 6% 33% 20% 13%
Time to exit deals 3%

3 9% 47% 31% 9% 41% 13% 28%
Expected returns on new inv

vestments 3%
3 16%
% 52% 25% 5% 30% 19% 11%

s 2%
2 14%
% 36% 44% 5% 48% 16% 33%
General bus
siness conditions
s 16% 23%
% 28% 25% 8% 33% 39% -6%
Appetite for risk 13% 28%

% 39% 17% 3% 20% 41% --20%
Responden ntsbelieveaccesstocapitalistthemostimporrtantissuefacinngprivatelyheldbusinessesto
oday.Governmeent
regulationssandtaxesareindicatedasthe emostimportaantemergingisssue.

y-Held Busin
nesses
0% 5% 10% 15% 20% 25% 30% 3

35% 40% 45%
Accesstocapital 41
1%
222%
25%
Econo
nal) 8%
11%
26%
ers 0%
6%
Inflation 0%
3%
her
Oth 11%
8%

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
VENTURE
V CAPITALLSURVEYYINFORM
MATION
Ofthe139participantswh horespondedtotheventureccapitalsurvey,aapproximately332%saythatth heyexpectworssening

generalbussinessconditionnsoverthenext12months,48 8%ofrespondeentsalsoexpecttashrinkingoftheventurecaapital
industry.Thhemajority(52%)ofresponde entsplanstomaakebetweentw woandfiveinveestmentsovertthenext12months.
Otherkeyffindingsincludee:
Th hetypesofbusinessesrespond dentsplantoin
nvestinthenexxt12monthsarreverydiversew
withover43%
taargetinginformationtechnologgyandanother19%planningttoinvestinheaalthcare.Appro oximately39%o of
reespondentsplanntomakenewinvestmentsou utsideoftheU. S.

Re espondentsexitstrategiesthaatincludesellin
ngtoapubliccoompanytotal411%,whileanothher27%of
reespondentsplanntoselltoapu
ubliccompany.

Re espondentsbelieveaccesstoccapitalisthemostimportanti ssuefacingprivvatelyheldbusinessestoday.
Do omesticeconommicuncertaintyyisindicatedassthemostimpoortantemerginggissue.
Operatio
haracteristicss
ebetweenoneandthreeinve stmentsoverthhelastsixmontths.
Figure
e 61. Total Nu
umber of Inv
vestments Ma
ade in the La
ast Six Montths
11% 14% 0 1
18% 13%
2 3
5%
5% 19% 4 5
15%
610 M
Morethan10
Figure 62
I Made in the
e Last Six Mo
onths
8% 16%
% 0 1
19%
12%
2 3
10% 12%
6%
% 4 5
17%
610 M
Morethan10

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
VENTURACAPITA
ALcont.
pondentsplanstomakebetwe
eentwoandfivveinvestmentsoverthenext112months.

estments Pla
anned over N
Next 12 Montths
19% 7% 4%
12% 0 1
18% 2 3
21%
12% 4 5
%
7%
610 Mo
orethan10

Figure 64 nvestments Planned ove
er Next 12 Mo
onths
18% 11%
1
9% 0 1
17% 2 3
18%
1
4 5
8%
8
6% 13% 610 Moreethan10
Responden
ntsreportedonbusinesspractiicesandtheressultsarereflecttedbelow.
Table 21. VC Fund D

Data

1st quartiile Median
n 3rd qua
artile
Vintage ye
ear (year in which
h first investmentt made) 2004 2007 2009
9
Size of fun
nd ($ millions) 20 58 131
Targeted number
n of total in
nvestments 11 16 25
Target fund
d return (gross pretax
p cash on ca
ash annual IRR %)
% 20 25 30
Expected fund
f return (gross pretax cash on
n cash annual IRR %) 15 21 30

Thetypeso
ofbusinessesre
espondentsplan
Information
ntechnologyanndanother19%
%planningtoinvestinhealthccare.
Figure 65
5. Type of Bu
usiness for In
nvestments P
Planned ove
er Next 12 Mo
onths
1% Informmationtechno ology
13% Healt hcare
4%4% 43% Basic materials&ennergy
5%
5% Manuufacturing
6% Businnessservices
19% Retaill&consumersservices
Finanncialservices
Wholesale&distrib bution
Otherr

2011|PEPPER
VENTURACAPITALcont.
Respondentsreportedonavarietyofstatspertainingtotheirinvestments.
Table 22. General Information on Investments by Company Stages
Seed Startup Early stage Expansion Later stage

Number of investments made in last six months
1st quartile 2 1 1 2 1
Median 2 2 2 2 1
3rd quartile 3 3 3 4 4
Average size of investment ($ millions)
1st quartile <1 <1 <1 <1 $3
Median <1 $2 $2 $3 $3
3rd quartile <1 $3 $3 $4 $8
Average % of total equity purchased (fully diluted basis)
1st quartile 15% 15% 5% 5% 5%
Median 25% 15% 15% 15% 5%
3rd quartile 25% 25% 20% 15% 15%
Total expected returns (gross cash on cash pretax IRR) on new investments
1st quartile 28% 23% 23% 18% 25%
Median 38% 30% 28% 28% 28%
3rd quartile 78% 45% 50% 38% 55%
Expected time to exit
1st quartile 5 4 3 3 2
Median 5 5 4 3 2
3rd quartile 7 6 5 5 2
Average company pre-money value
1st quartile 1.5 2.5 3.5 8.0 25.0
Median 1.5 2.5 8.0 15.0 35.0
3rd quartile 2.5 8.0 15.0 35.0 80.0
Average company value at time of investment (post-money $ millions)
1st quartile 1.0 3.5 3.5 15.0 25.0
Median 2.5 8.0 8.0 25.0 45.0
3rd quartile 3.5 10.0 15.0 35.0 90.0

PEPPERDIN
NEPRIVATECAP
REPORT20112012
VENTURACAPITA
ALcont.
Responden ntsreportedonwheretheyplaantoinvestove
erthenext12m
months.Theressultsreflectinveestmentthrougghout
theU.S.,39
9%ofrespondentsareplanningtoinvestoutssideoftheU.S.
Figure 66.. Geographic

c Location off Planned Inv
vestment ov
ver Next 12 M
Months
SiliiconValley
11%
%
11% BayArea
39% 5% NeewEngland
5%
3% NeewYorkMetro
26%
SouthernCaliforn
nia
AllOtherUS
Ou
utsideofUS
Whenvaluiingthecompan ny,approximate
ely40%ofthew
weightofthevaaluationisputo
onatransaction
napproachwheen
valuingprivvatelyheldbusinesses.

n Approache
es
12% Trransactionapp
proach
5% 40%
11
1% ubliccompanyapproach
Pu
15%
1 Incomeapproacch(DCF,NPV,IRR)
17%
% Co
oststocreateaapproach
Asssetbasedapp
proach
Otther
Responden dtocloseonedeal.
Figure
R to C
Close One De
eal
120 100
100
80 60
60
40 30 30
0
20
20 10 3 5
2 1 1 2
0
Businessplan
nsor Meettingswithprin
ncipals Propossallettersorteerm Letterso
ofintentsigned
d
emorandumsrreviewed
me conducted shheetsissued
1stQuartile
1 Median 33rdQuartile

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
VENTURACAPITA
ALcont.
Responden ntsexitstrategiiesthatincludesellingtoapub
bliccompanytootal41%,while another27%o
ofrespondentsplan
toselltoaprivatecompan ny.
Figure
e 69. Exit Plan
ns for Portfo
olio Companiies
4%3%
% 4%
4% Selltoapubliccoompany
5% 41% Selltoaprivateccompany
12% IPOO
Selltoprivateeq
quitygroup
SelltoanotherVVC
27%
Maanagementbuyout
Liqquidateorbankrupt
Other

utives,wouldbe
chiefexecu enefitfromadditionalleadersh
Figure 70.
7 Would Se
enior Manage
ers and Chie
Skillls Training?
?

7% 22% Stro
onglyagree
16%
%
Agrree
Neu
utral
54%
Disaagree
Accordingttorespondents,,leadershipskills,strategicplaanning,andundderstandingcom
mpetitiveenvironmentsareth
he
Figure
e 71. Skills That
T Are Impo
ortant for Se
enior Manage
ement to Hav
ve
Leaderrship 81% 9
91%
Strategicplan
nning 72% 89 %
Understaandingcompettitiveenvironm ments 7
70% 83%
Saalesandmarkeeting 7
70% 79%
In
nspiringinnovaation 60%65%
%
Knowleddgeofbusinessandworldevvents 46%%51%
Humanresou urces 499%
57%
51%
Legalandreggulatoryknowle edge 39%
40%
Managgementaccoun nting 37%
Globalbusinessmanagem ment 31%
54%
Quantitative eanalysis/rese
earch 30%37%
Other
O 2.9%
%
5%
Todayy Inthefutture

2011|PEPPER
VENTURACAPITALcont.
Respondentsindicatedincreasesindemandforventurecapital,qualityofcompaniesseekinginvestment,followon
investments,andpresenceofsuperangelsinspaceformerlyoccupiedbyVCs.Theyalsoreporteddecreasedsizeof
venturecapitalindustryandworsenedgeneralbusinessconditions.

Stayed Net
about the increase/
same decrease
Demand for venture capital 1% 10% 40% 30% 18% 48% 12% 36%
Quality of companies seeking
1% 7% 46% 34% 12% 46% 9% 37%
investment
Follow-on investments 0% 5% 41% 33% 22% 55% 5% 50%
Average investment size 2% 9% 56% 26% 8% 33% 11% 23%
Exit opportunities 4% 34% 26% 25% 10% 35% 38% -3%
Time to exit deals 0% 12% 32% 44% 12% 56% 12% 44%
Expected returns on new
0% 33% 43% 16% 7% 24% 33% -9%
investments
Value of portfolio companies 1% 28% 33% 30% 7% 37% 30% 7%
Presence of super angels in space

0% 11% 26% 43% 20% 62% 11% 51%
formerly occupied by VCs
Size of venture capital industry 14% 47% 29% 8% 3% 11% 61% -50%
Respondentsexpectfurtherincreasesinallbusinesscharacteristicsexceptgeneralbusinessconditionsandsizeof
venturecapitalindustry.
Net
increase/
decrease
Demand for venture capital 3% 3% 27% 52% 15% 67% 6% 61%
Quality of companies seeking
0% 5% 39% 48% 8% 56% 5% 52%
Investment
Follow-on investments 0% 5% 27% 48% 20% 69% 5% 64%
Exit opportunities 3% 21% 32% 35% 9% 44% 24% 20%
Time to exit deals 2% 3% 44% 41% 11% 52% 5% 47%

2% 25% 40% 29% 5% 34% 26% 8%
investments
Value of portfolio companies 3% 14% 32% 40% 11% 51% 17% 34%
Presence of super angels in space
3% 12% 55% 23% 7% 30% 15% 15%
formerly occupied by VCs
Size of venture capital industry 8% 41% 38% 11% 3% 14% 48% -34%

PEPPERDIN
NEPRIVATECAP
REPORT20112012
VENTURACAPITA
ALcont.
Responden
ntsbelieveaccesstocapitalistthemostimporrtantissuefacinngprivatelyheldbusinessesto
oday.Domestic
economicu
uncertaintyisin
ndicatedasthemostimportan ntemergingissuue.

y-Held Busin
nesses
0% %
5% 10% 15% 20% 25% 0%
30 35% 40%
Accesstocapital 3
37%
200%
Ecconomicuncerttainty(domesttic) 28
8%
26%
Econo
nal) 18%
200%
23%
Oth
her 4%
4
%
3%
ers 1%
5%
Inflation 0%
3%
%

2011|PEPPER

PEPPERDIN
NEPRIVATECAP
REPORT20112012
PRIVATEEQUITYSSURVEYIINFORMA
ATION
Consistent with previous iterations of the

t report, 43% % of the 288 pparticipants whho responded tto the private equity
groupssurvveyindicatedth hattheymake investmentsinthe$10millio nto$25millionrange.Nearlyy52%ofrespon ndents
saidthatde emandforprivateequityisup pfromsixmonthsago,thisisslightlydown from57%ofreespondentsindicating
increasedd demandinsprinng2011.Otherkeyfindingsincclude:
Re espondentsinddicatedincrease esinthequalityyofcompanies seekinginvestm mentandtheamountofnon

coontrolinvestmeents,aswellasaslightincreaseeindealmultipples.Theyalsorreportedadecrreaseinexpected
reeturnsonnewinvestmentsand dworsenedgen neralbusinesscconditions.

Re espondentsexp pectfurtherincreasingdemandforprivateeqquityanddealm multiples,worseeningbusiness
coonditions,andaalowerappetiteeforrisk.
Th hetypesofbusinessesrespond dentsplantoinnvestinoverneext12monthsaareverydiverseewithover19% %
taargetingmanufaacturingandan nother16%plan nningtoinvest inbusinessservvices.
Re espondentsbelievedomestice economicuncertaintyisthem mostimportantissuefacingprivatelyheld

buusinessestodayy.Nearly28%ofrespondentsindicatedgoverrnmentregulatiionsandtaxesaasthenumberone
emmergingissue.
Operatio
haracteristicss
$10$25millio nrange(35%), followedby$225$50million(33%),

Thelargestconcentrationofcheckswritttenwasinthe$
and$5$1
10million(33%))
Figure
F 73. Ty
ypical Investm
ment Size

40% 33% 35%
3 333%
30%
30%
18%
% 16%
%
20%
8%
10% 3%
0%
essthan$1 $15million
Le $5$10 $1
1025 $25$50 $50$$100 $100$500 Greatertthan
million million
m miillion mil lion milliion millio
on $500million
Responden
Table 25
5. PEG Fund Data

n 3rd qua
artile
Vintage ye
ear (year in which
0
Size of fun
nd ($ millions) 50 178 428
Targeted number
n of total in
nvestments 7 10 13
Target fund
p cash on ca
ash annual IRR %)
% 20 25 30
Expected fund

RIVATEEQUITTYcont.

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
Thetypeso
ofbusinessesre
espondentsplan
manufacturingandanothe er16%planninggtoinvestinbu
usinessservicess.

Figure 74
4. Type of Bu
usiness for In
nvestments P
Planned ove
er Next 12 Mo
onths
Maanufacturing
Buusinessservicess
6% 13% 19
9%
6%
6 Heealthcare
7% 16% Reetail&consumerservices
9%
9 Baasicmaterials&
&energy
12% 12%
Wh holesale&disttribution
nancialservices
Fin
Infformationtechhnology
Otther

ebetweenoneandthreeinve stmentsoverthhelastsixmontths.
Figure
e 75. Total Nu
umber of Inv
vestments Ma
ade in the La
ast Six Montths
2% 3%
7%4% 0 1
26%
11%
% 2 3
17%
% 4 5
30%
610 M
Morethan10
Figure 76. Number of Follow-on Investments

I Made in the
e Last Six Mo
onths
3% 2%1%1%
8% 0 1
39%
17%
% 2 3
4 5
29%
610 M
Morethan10
pondentsplanstomaketwoorthreeinvestm
mentsoverthennext12monthss.

estments Pla
anned over N
Next 12 Montths
1% 2%
%
12% 9% 0 1
6%
6
9% 31% 2 3
30% 4 5
610 Morethan10
PRIVATEEQUITTYcont.

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
Figure 78
nvestments Planned ove
er Next 12 Mo
onths
1%
3% 6% 5% 16%
% 0 1
14% 2 3
31% 4 5
24%
610 Mo
orethan10
Averagede ealmultiplesforrbuyoutdealsfforthepriorsixxmonthsvaryfrromfourtosevventimesEBITD
DAdependingo
onthe
sizeoftheccompany.Expectedreturnsvaaryfrom23%to o30%.
Table
e 26. Generall Characteris
stics Buyou
ut Transactio
ons (medians
s)
$1M $5M $
$10M M
$25M $50M $100M >$
$100M
EBITDA EBITDA EB
BITDA EBITD
DA EBITDA EBITDA EB
BITDA
Average siize of investmentt ($ millions) 1 4 15 25 50 100+ 1

100+
Expected time
t to exit (yearrs, median) 4 5 5 4 4 4 4
Equity as % of new capital structure 45% 55% 50% 45%
% 35% 45% 3
35%
% of total equity
e purchased
d 95% 85% 75% 65%
% 75% 85% 8
85%
Average de
eal multiple (multiple of EBITDA) 4 5 6 6 7 7 7
Total expected returns (gro
oss cash on cash
h
30% 26% 25% 25%
% 25% 25% 2
23%
pre-tax IRR
R)

Averageexxpectedreturnssonnonbuyou
utdealsvaryfro
om20%to25% .
Table 27
7. General Ch
haracteristic
cs Non-Buy
yout Transac
ctions (media
ans)
$1M $5M $
$10M $25M
M $50M $100M >$
$100M
EBITDA EBITDA EB
BITDA EBITD
DA EBITDA EBITDA EB
BITDA
Average siize of investmentt ($ millions) 1.5 4 15 25 45 75 60

Expected time
t to exit (yearrs, median) 3.5 5 4 4 3 3 3.5
Equity as % of new capital structure 55% 35% 4
45% 35%
% 55% 45% 5%
% of total equity
e purchased
d 25% 20% 15% 15%
% 45% 25% 15%
Average de
eal multiple (multiple of EBITDA) 4 5 5 5.5 7.5 8 8
Total expected returns (gro
oss cash on cash
h
25% 25% 25% 22%
% 22% 22% 2
20%
pre-tax IRR
R)
PRIVATEEQUITTYcont.
Whenvaluiingabusiness,approximately35%oftheweightisplacedonnanincomeappproach.

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012

n Approache
es
Incomeap
pproach(DCF,NPV,IRR)
12%
% 9%
35% Transactio
onapproach
17
7% Publiccom
mpanyapproacch
27
7% Assetbaseedapproach
Other
Whenrespondentsuseam multiplebasedapproach,themultiplewitht helargestweigghtistheEBITDAmultiple(30%

%)or
recast(adju multiples(26%).
usted)EBITDAm

ultiples
Revenu
uemultiple
6% 3% 10%
% RecastEBITDAmultip
ple
%
18%
26% EBITDA
Amultiple
7%
EBITmultiple
30%
Cashflo
owmultiple
Netinccomemultiple
Other
plesvaryfrom3
Dealmultip 3.5to9,thehigghestmultiplesareinhealthcaareindustrywitthaverageat7..2.
Table 28. Deal

D Multiple
es Among Ind
dustries (me
edians)
$1M $5M $10M $25M $50M $

$100M
Average
EBITDA EBITDA EBITDA EBITDA EBITDA BITDA
EB
Manufacturing 4 5 5 5 5.5 6.5 5.2
Retail & co
onsumer services
s 4.5 5.5 6 6 7 8 6.2
Wholesale & distribution 4.5 5 5.5 n/a n/a 5.5 5.1
Business services
s 4.5 4.5 5 6.5 7 7 5.8
Basic mate
erials & energy 4 5 6 6 6 6 5.5
Health care
e 5 7 7.5 7.5 n/a 9 7.2
Information
n technology 7 7 n/a 7 n/a 7.5 7.1
Financial services
s 4.5 n/a 6.5 n/a n/a 8.5 6.5
Average 4.8 5.6 5.9 6.3 6.4 7.3 6.0
PRIVATEEQUITTYcont.

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
Responden
dtocloseonedeal.
Figure
R to C
Close One De
eal
120
100
100
80
60 50
40 5
25
20 15
20 8 5 10
3 1 2 3
0
nsor
Businessplan Meeetingswithprin
ncipals Propoosallettersorterm Lettersofintentsigneed
emorandumsrreviewed
me conducted ssheetsissued
1stQuartile
Responden ntsexitstrategiiesthatincludesellingtoaprivvatecompanyttotal28%,whileeanother26%ofrespondentssplan
toselltoan
notherprivatee equitygroup.
Figure
e 82. Exit Plan
ns for Portfo
olio Companiies
1% Selltooaprivatecom
mpany
5% 6%
28% SelltooanotherPEG
12%
%
Selltooapubliccompany
22% IPO
26%
Manaagementbuyou
ut
LiquiddateorBankru
upt
Otherr
Responden ntsreportedonaverageitiseaasierforthemto
oarrangesenioordebtforinveestmentsintoco
ompanieswith
$5millioninEBITDAandm
more.
Ta
able 29. The Ease
E to Arrange Senior Debt
D for Tran
nsactions ov
ver the Past S
Six Months

Extremmely Somewhat S
Somewhat Extrremely Score
Difficult Neutral Easy
difficult Difficult Easy E
Easy (-3 to
o 3)
$1M EBITD
DA 31%
% 26% 17% 12% 3% 5% 5
5% -1.5
5
$5M EBITD
DA 13%
% 21% 28% 11% 12% 12% 4
4% -0.6
6
$10M EBIT
TDA 5%
% 7% 25% 16% 18% 25% 5
5% 0.3
3
$15M EBIT
TDA 3%
% 8% 23% 13% 15% 23% 15% 0.5
5
$25M EBIT
TDA 3%
% 3% 28% 19% 19% 14% 14% 0.5
5
$50M EBIT
TDA 3%
% 7% 21% 17% 21% 17% 14% 0.5
5
$100M+ EB
BITDA 4%
% 0% 15% 15% 19% 23% 2
23% 1.3
3
PRIVATEEQUITTYcont.

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
Mostofthe
erespondentsb
believeworthyyoffinancinge
exceedscapitaalavailableforrthecompaniesswithlessthan
n
$10MinEBBITDA.Whereassforthelargercompanies,caapitalavailableexceedswortthyoffinancingg.
Tablle 30. The Ba

alance of Ava
ailable Capittal with Qualiity Companiies for the Fo
ollowing Size
e

Comp panies Capital
Capital
wortthy of Companies available
available
financing woorthy of GREATLY Y
General exceeds Score e
GRE EATLY fin
nancing exceeds
balance companies (-2 to 2
2)
exc
ceed exce
eed capital companiess
worthy of
capital avvailable worthy of
financing
available financing
$5M EBITD
DA 39
9% 24% 13% 17% 8% -0.7
$10M EBIT
TDA 17
7% 35% 22% 21% 4% -0.4
$15M EBIT
TDA 6%
6 24% 32% 29% 10% 0.1
$25M EBIT
TDA 4%
4 20% 33% 26% 17% 0.3
$50M EBIT
TDA 4%
4 12% 41% 28% 16% 0.4
$100M EBITDA 3%
3 14% 30% 39% 14% 0.5
> $100M EBITDA
E 4%
4 7% 32% 38% 20% 0.6
Averagevaluationdiscoun ntsforlackofco
ontrolimpliedttoproratavaluuesforvariousssizedminoritysstockinterestsina
typicalprivatelyheldcompanywithatottalequityvalueof$10million varyfrom10%to25%forprofitablebusinesss,and
from25%to45%forunprrofitablebusine essdependingoonpercentageoofequityinterest.
Table 31.. Valuation Discount

D for Minority
M Stock Interests in a Typical Privately-He
eld Company
y with
a Total Equity
y Value of $1
10 Million

Profitable bus
siness Unprofitable business
1st quartile Median
n 3rd quartiile 1st quartiile Median
n 3rd quarttile
10% equity
y interest 15% 25% 35% 25% 45% 65%
20% equity
y interest 15% 20% 25% 24% 35% 50%
30% equity
y interest 11% 18% 24% 24% 25% 50%
40% equity
y interest 10% 15% 20% 20% 30% 55%
50% equity
y interest 2% 10% 19% 19% 25% 45%


chiefexecu
utives,wouldbe
Figure 83.
8 Would Se
enior Manage
ers and Chie
Skillls Training?
?

4% Stronglyagree
17%
35%
Agree
44% Neutral
Disagree
PRIVATEEQUITTYcont.

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
Accordingttorespondentsleadershipskills,strategicplanning,andundderstandingcom
mpetitiveenviro
onmentsarethe
Figure
e 84. Skills That
T Are Impo
ortant for Se
enior Manage
ement to Hav
ve
0% 10
0% 20% 300% 40% 5 0% 60% 7
70% 80% 9
90%
Leaderrship 74% 8 84%

ments 68% 77%
Strategicplan
nning 70%75%
Saalesandmarke
eting 51% 61%%
Knowled
dgeofbusinessandworldevvents 52%56%
nspiringinnovaation
In 446%
48%
Humanresou
urces 41%
41%
%
40%
edge 36%40%
Managgementaccoun
nting 34%
31%
ment 33% 52%
eanalysis/rese
Quantitative earch 30%36%
Todayy Inthefutture
Relativetosixmonthsago
o,respondentsindicatedincreaasesindemanddforprivateequity,qualityofcompaniesseeeking
investmentt,amountofnooncontrolinvesstmentsandsligghtincreasesinndealmultipless.Theyalsoreportedadecreassein
expectedreeturnsonnewiinvestmentsanndworsenedgeneralbusiness conditions.
Ta
able 32. Gene
ment: Today v
versus Six M
Months Ago

Stayed Net
Decrreased Decreased Increased Inc reased % %
about the inc
crease/
signifficantly slightly nificantly increasse decrease
slightly sign
same deecrease
Demand fo
or private equity 1%
1 7% 41% 35% 17% 52% 8% 44%
Quality of companies
c seekiing
1%
1 25%
% 29% 38% 7% 45% 26% 19%
investmentt
Average in
nvestment size 1%
1 14%
% 52% 30% 3% 33% 15% 18%
Non-contro
ol investments 0%
0 9% 55% 28% 8% 36% 9% 27%
Expected investment holdin
ng
0%
0 7% 40% 35% 18% 53% 7% 46%
period
Deal multip
ples 3%
3 25%
% 32% 31% 9% 40% 28% 11%
Exit opporttunities 9%
9 34%
% 27% 25% 5% 30% 43% -13%
Expected returns
r on new
2%
2 31%
% 45% 21% 1% 21% 34% -12%
investmentts
Value of po
ortfolio companie
es 2%
2 32%
% 23% 38% 5% 43% 35% 8%
General bu
usiness condition
ns 12% 47%
% 22% 17% 2% 19% 59% -40%
Size of priv
vate equity indus
stry 2%
2 27%
% 43% 22% 5% 28% 29% -2%
PRIVATEEQUITTYcont.

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
Responden ntsexpectfurtherincreasesinallbusinesschaaracteristicsexcceptgeneralbuusinessconditio
onsandsizeof
privateequ
uityindustry.

A Expectation
ns over the N
Next 12 Month
hs
Stay N
Net
Decrrease Decreaase Increase Incrrease % %
about the incrrease/
signifficantly slightly slightly signifficantly increase
e decrease
same deccrease
Demand for private equity 0%
0 5% 32% 50% 1 3% 63% 5% 5
58%
Quality of co
ompanies seeking
1% 16% 32% 43% 9
9% 51% 17% 3
35%
investment
Average investment size 0%
0 14% 46% 36% 5
5% 41% 14% 2
27%
Non-control investments 1% 12% 49% 32% 6

6% 39% 13% 2
26%
Expected inv
vestment holding
g period 0%
0 6% 48% 37% 9
9% 45% 6% 3
39%
Deal multiple
es 3%
3 25% 38% 31% 2
2% 34% 28% 6
6%
Exit opportunities 6%
6 27% 39% 25% 3
3% 29% 33% --4%
2%
2 26% 47% 25% 1
1% 26% 27% --2%
investments
s
s 4%
4 22% 36% 32% 6
6% 38% 26% 1
12%
General bus
siness conditions
s 11
1% 33% 28% 25% 3
3% 28% 44% -1
17%
Size of priva
ate equity industrry 4%
4 23% 47% 20% 6
6% 26% 27% --1%
ntsbelievedomesticeconomiccuncertaintyisthemostimporrtantissuefacinngprivatelyheldbusinessesto
Responden oday.

y-Held Busin
nesses
0% %
5% 10% 15% 20% 25% 0%
30 35% 40%
Accesstocapital 3
37%
200%
28
8%
Econo
nal) 18%
200%
23%
Oth
her 4%
4
%
3%
ers 1%
5%
Inflation 0%

2011|PEPPER

PEPPERDIN
NEPRIVATECAP
REPORT20112012
MEZZA
ANINESU
URVEYINFFORMATION
Ofthe75pparticipantsthattrespondedtothemezzaninesurvey,58%reeportedmakinggdealsovertheepastsixmonthsin
the$5milliionto$10millio
onrangeand39 9%madeinvestmentsinthe$$1millionto$5millionrange.Over22%planon
investinginnbusinessservicesovertheneext12months,ffollowedby21% %inmanufactuuring.Otherkeyyfindingsinclud de:
Re espondentsind dicatedincreaseesindemandfoormezzaninecaapital,qualityo fborrowersseeekinginvestment,

avverageinvestmentsize,andleveragemultiple es.Theyalsoreeporteddecreassesinwarrantccoverage,PIK
(ppaymentinkindd)features,exp
pectedreturnsonnewinvestm ments,andworrsenedgeneralbusinessconditions.

Re espondentsexp pectfurtherincreaseindeman ndformezzaninnecapital,butfflatleveragemuultiples;aslightt
ncreaseinunderwritingstandaards;relativelyfflatloanfees,PPIK,andwarranttcoverage;asignificantdecreeasein
in
geeneralbusinesssconditions;andIncreasingsizzeofmezzanineeindustrywithadditionalcom mpetitionfrom
buusinessdeveloppmentcompaniies(BDCs)andSSBIC(smallbus inessinvestment)funds.
Th hemajorityofrrespondents(62 2%)believedommesticeconom icuncertaintyisthemostimportantissuefaccing

prrivatelyheldbu
usinessestodayy.
Operatio
haracteristicss
Approximately42%ofrespondentsareSBICFirms.
Figure 86
6. SBIC (small business iinvestment) F
Firms

42%
Yes
58%
No
Thelargestconcentrationofloansizeswasbetween$5 millionand$100million(58%).
Figure
F 87. Ty
ypical Investm
ment Size

70% 58%
60%
50% 39% 37%
40%
30% 18%
20% 10%
6% 5%
10%
0%
Lessthan$1 $15million $5$10 $1025 $25$50 $50$100 $100$500
million million million million million million

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
MEZZANIN
NEcont.
Responden
Table 34. Mezzanine

M Fu
und Data

n 3rd qua
artile
Vintage ye
ear (year in which
8
Size of fun
nd ($ millions) 100 200 488
Targeted number
n of total in
nvestments 15 20 25
Target fund
p cash on ca
ash annual IRR %)
% 16 19 20
Expected fund

Thetypeso
ofbusinessesre
espondentsplan
businessse
ervices,followedby21%whop nmanufacturin g.
plantoinvestin

Figure 88
8. Type of Bu
usiness for In
nvestments P
Planned ove
er Next 12 Mo
onths
2% 3% Businessservices
8% 22%
2 Manufacturingg
8% Healthcare
10% Retailandcon
nsumerservicees
21% Wholesale&d distribution
12%
14% Informationteechnology
Basicmaterials&energy
Financialserviices
Other

ebetweenoneandfiveloansooverthelastsixxmonths.
Figure
e 89. Total Nu
umber of Inv
vestments Ma
ade in the La
ast Six Montths
9% 14%
% 0 1
20% 11%
2 3
11% 18%
3% 4 5
14%
610 Morrethan10
MEZZANIN
NEcont.

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
Figure 90
I Made in the
e Last Six Mo
onths

2% 2%
5% 6% 0 1
34%
15%
2 3
17%
% 4 5
19%
610 Morethan10
Approximately32%ofrespondentsplantomakebetwe
eensixand10innvestmentsoveerthenext12m
months.

estments Pla
anned over N
Next 12 Montths
2% 2%
%
4%
23%
2 14% 0 1
9%
2 3
32%
% 14%
4 5
610 M
Morethan10

Figure 92 nvestments Planned ove
er Next 12 Mo
onths
2%
10% 12%
% 0 1
13%
25%
8% 2 3
13%
% 4 5
17
7%
610 Mo
orethan10
MEZZANIN
NEcont.

2011|PEPPER
ResultsofresponsestosponsoreddealsbasedonsizeofinvesteeEBITDAarereportedbelow.
Table 35. Sponsored Deals by Size of Investee Company EBITDA (medians)

$1M $5M $10M $25M $50M $100M
EBITDA EBITDA EBITDA EBITDA EBITDA EBITDA
% of deals with warrants 100% 100% 46% 30% 26% 7%

Average loan terms (years) 5 5 5 5 6 6.5
Senior leverage ratio (multiple of EBITDA) 2 2.25 2.5 3.25 3.25 4
Total leverage ratio (multiple of EBITDA) 3 3.25 3.5 4.25 4.75 5.25
Average loan size 4 4 7.5 15 25 90
Cash interest rate 12% 12% 12% 11% 11% 9.5%
PIK 0% 2% 3% 3% 3% n/a
Warrants expected return (IRR contribution) 2% 7% 4% 2% n/a n/a
Total expected returns (gross cash on pre-tax IRR) 23% 21% 18.5% 18% 18% 17.5%
Table 36. Investment Type by Size of Investee Company, Sponsored Deals
Senior debt only Sub debt only Blended Sr./Jr. Other
$0M - $1M EBITDA 0% 67% 33% 0%
$1M - $5M EBITDA 0% 40% 60% 0%

$5M - $10M EBITDA 8% 33% 50% 8%
$10M - $25M EBITDA 10% 20% 60% 10%
$25M - $50M EBITDA 17% 17% 67% 0%

$50M+ EBITDA 25% 25% 50% 0%
ResultsofresponsestononsponsoreddealsbasedonsizeofinvesteeEBITDAarereportedbelow.
Table 37. Non-Sponsored Deals by Size of Investee Company EBITDA (medians)
$1M $5M $10M $25M $50M $100M

EBITDA EBITDA EBITDA EBITDA EBITDA EBITDA
% of deals with warrants 88% 83% 60% 75% 100% 100%
Average loan terms (years) 4 5 5 5 7 3
Senior leverage ratio (multiple of EBITDA) 2 2.5 3 3 n/a n/a
Total leverage ratio (multiple of EBITDA) 4 3.5 3.5 4.25 n/a n/a
Average loan size 4 4 7.5 15 100 n/a
Cash interest rate 11% 11% 11% 9% 9% n/a
PIK 2% 2% 2% 3% 2% 0%
Warrants expected return (IRR contribution) 8% 10% 5% 8% 6% 6%
Total expected returns (gross cash on pre-tax IRR) 17.5% 18% 18% 18.5% 21% 23%
MEZZANINEcont.

PEPPERDIN
NEPRIVATECAP
REPORT20112012
Table 38.. Investment Type by Siz

ze of Investee
e Company, Sponsored D
Deals
Senior debt
d only Sub debt onlyy Blende
ed Sr./Jr. Other
$0M - $1M EBITDA 0% 0% 100% 0%
$1M - $5M EBITDA 0% 5
53% 47% 0%
$5M - $10M
M EBITDA 20% 4
40% 40% 0%
$10M - $25
5M EBITDA 20% 2
20% 60% 0%
$25M - $50
0M EBITDA 0% 0% 100% 0%
$50M+ EBITDA 100% 0% 0% 0%
Acquisitionloanwasreportedby31%ofrespondentsassborrowermottivation,followedbymanagem
mentbuyoutsat
22.6%.
Figure 93. Borrower

B Mo
otivation to Secure
S Mezza
anine Fundin
ng (past six m
months)
Acquisitionloan
6% 2%
16%
% 31% Managemen
ntbuyout
16% Refinancingg
Financinggrrowth
29%
Workingcap
pitalfluctuatio
ons
Financeworrseningoperattionscondition
ns

Responden
dtocloseonedeal.
Figure
R to C
Close One De
eal
100 90
90
80
70
60 50
50
40 35
30
18.5
20 10 10
10 5
5.75 4 5.5 3
1 2
0
Businessplan
nsor Meettingswithprincipals Propossallettersorteerm Lettersofintentsigned
d
emorandumsrreviewed
me conducted shheetsissued
1stQuartile
MEZZANIN
NEcont.

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012

chiefexecu
utives,wouldbe

Figure 95.
9 Would Se
enior Manage
ers and Chie
Skillls Training?
?

2%
18% 29% Stronglyagreee
Agree
Neutral
51% Disagree
Accordingttorespondents,,leadershipskills,understandingcompetitiveeenvironmentssandstrategicp
planningarethe
Figure
e 96. Skills That
T Are Impo
ortant for Se
enior Manage
ement to Hav
ve
0% 10% % 40% 50% 60% 70% 80% 90% 10

% 20% 30% 00%
Leaderrship 93
3%
84%
ments 89%
84%
82%
Strategicplan
nning 79%
Saalesandmarke
eting 7
73%
65%
53%
Knowled
42%
nspiringinnovaation
In 58%
42%
Managgementaccoun
nting 35%
edge 40%
551%
38%
Quantitative
eanalysis/rese
earch 35%
33%
Humanresou
urces 330%
20%
ment 35%
Todayy Inthefutture
MEZZANIN
NEcont.

2011|PEPPER
Totaldebttocashflowratiowasthemostimportantfactorwhendecidingwhethertoinvestornot,followedbytotal
debtservicecoverageratio.

Table 39. Importance of Financial Evaluation Metrics

Of little Moderately Very Score
Unimportant Important
importance important important (1 to 5)
Senior DSCR or FCC ratio 17% 6% 17% 37% 23% 3.43
Total DSCR or FCC ratio 3% 3% 6% 34% 54% 4.34
Senior debt-to-cash flow ratio 6% 0% 18% 47% 29% 3.94
Total debt-to-cash flow ratio 0% 0% 6% 24% 70% 4.64
Table 40. Financial Evaluation Metrics Average Data

Financial ratio
Average borrower data Limit not to be exceeded
covenant after booking
Senior DSCR or FCC ratio 1.4 1.4 1.4
Total DSCR or FCC ratio 1.4 1.2 1.2
Senior debt to cash flow ratio 2.5 3 3
Total debt to cash flow ratio 4 4 4
Relativetosixmonthsago,respondentsindicatedincreasesindemandformezzaninecapital,qualityofborrowers
seekinginvestment,averageinvestmentsize,andleveragemultiples.Theyalsoreporteddecreasesinwarrantcoverage,
PIKfeatures,andexpectedreturnsonnewinvestments,aswellasworsenedgeneralbusinessconditions.

Stayed Net
about the increase/
same decrease
Demand for mezzanine capital 0% 12% 33% 47% 9% 56% 12% 44%
Credit quality of borrowers seeking
0% 19% 49% 28% 5% 33% 19% 14%
investment
Average investment maturity 0% 0% 93% 7% 0% 7% 0% 7%
General underwriting standards 5% 19% 57% 17% 2% 19% 24% -5%
Warrant coverage 8% 31% 46% 13% 3% 15% 38% -23%
PIK features 0% 24% 63% 10% 2% 12% 24% -12%
Loan fees 0% 12% 81% 7% 0% 7% 12% -5%

2% 45% 26% 21% 5% 26% 48% -21%
investments
MEZZANINEcont.

PEPPERDIN
NEPRIVATECAP
REPORT20112012
Respondenntsexpectfurtherincreasesinallbusinesschaaracteristicsexcceptgeneralbuusinessconditio
onsandcreditq
quality
ersseekinginvestment.
ofborrowe

A Expectation
ns over the N
Next 12 Month
hs
Net
Deccrease Decreaase Stay aboutt Increase In crease % %
ncrease/
in
significantly slighttly the same slightly signnificantly increasse decrease
deecrease
Demand fo
or mezzanine cap
pital 0%
0 2%
% 41% 37% 20% 56%
% 2% 54%
Credit quality of borrowers seeking
2%
2 29%
% 44% 22% 2% 24%
% 32% -7%
investmentt
Average in
nvestment size 0%
0 3%
% 80% 15% 3% 18%
% 3% 15%
Average in
nvestment maturiity 0%
0 3%
% 93% 3% 3% 5% 3% 3%
General un
nderwriting stand
dards 0%
0 13%
% 65% 20% 3% 23%
% 13% 10%
Warrant co
overage 0%
0 13%
% 68% 15% 5% 20%
% 13% 8%
PIK feature
es 0%
0 10%
% 80% 5% 5% 10%
% 10% 0%
Loan fees 0%
0 5%
% 83% 10% 2% 12%
% 5% 7%
Leverage multiples
m 2%
2 27%
% 41% 29% 0% 29%
% 29% 0%
Expected returns
r on new
0%
0 20%
% 44% 29% 7% 37%
% 20% 17%
investmentts
General bu
usiness condition
ns 5%
5 51%
% 27% 17% 0% 17%
% 56% -39%
Size of me
ezzanine industry
y 0%
0 10%
% 49% 34% 7% 41%
% 10% 32%
Responden
oday.
Figure 97
7. Issues Faciing Privately
y-Held Busin
nesses
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
%
29%
Econo
nal) 21%
Accesstocapital 17%
9%
28%
Inflation 2%
5%
5
ers 1%
Oth
her 4%
%
BANKAN
B NDASSETBASEDLLENDING SURVEYINFORMA
ATION

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
Therewere e103responsesstothebanksssurveywithcom mmercialbanks makingup35% %intermsofindividuallendingg

function.O
Over32%ofresp pondentsbelievvethatgeneralbusinesscondiitionswillimpro oveovertheneext12monthsaand
over51%saaiddemandforrloanswillincre ease.Otherkeyyfindingsincludde:
Overthelastsixmonthsrespon ndentsweresee eingworsened businesscondittionsandappettiteforrisk,flatt

deemandforloansandunderwriitingstandardswithslightincrreaseincreditqqualityofborro owers,andfocuson
coollateralasabaackupmeansofpayment.

Re espondentsalso oexpectincreaaseinlendingcaapacityofbank sandSBAlending,flatunderwwritingstandarddsand
crreditqualityofborrowers,slightincreasesinseniorandtotaalleveragemulttiples,increasinngduediligencee
effforts,andfurthherpricingcompression.
Cu urrently,themajorityoflende ers(56%)seedo omesticeconom micuncertaintyyasthetopissu

uefacingprivateely
heeldbusinesses.
Operatio haracteristicss
Respondenntsreportedonthetypeofenttitythatbestde
escribesthemaand55%reportasbeingacom
mmercialbank,
followedbyy15%asacorp
poratebank.
Figu
ure 98. Descrription of Le nding Entity
y

2% 2% 1% Commercialban
nk
5% A
Assetbasedlen
nder
8% 35%
8% Corporatebankk
Communityban
nk
8%
Commercialfinaancecompanyy
31% O
Other
Privatebanker
R esidentialmorrtgagelender
Creditunion
Themajoritty(78%)reportparticipatingin
ngovernmentloanprograms.
Figure 99. Participation

P n in Governm
ment Loan Prrograms
22%
Yes No
78%
BANK
KScont.
Thelargestconcentrationofloansizeswasbetween$1millionand$255million(58%).

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
Fiigure 100. Ty
ypical Investtment Size

30%
25%
25%
20% 17%
% 118%
14% 15%
15%
11%
10%
5%
0%
Lessthan$1 $15millio
on $6$10m
million $11225million $$25$50 G
Greaterthan$50
million million million
Responden
ntsreportedonallinratesforvariousindustrries.

Table
T 43. Alll-in Rates by
y Industry

$1M $5M $1
10M $25
5M $50M $100M
Manufacturing 5.5% 5.8%

5 5..0% 4%
% 3.5%
% 3.3%
%
Retail and consumer servic
ces 6.3% 6% 5..8% 5.3
3% 5.0%
% 3.8%
%
Wholesale & distribution 6% 6% 5..3% 5.0
0% 3.8%
% 3%
Business services
s 6.3% 5.5%
5 5..3% 5.0
0% 3.5%
% 3.5%
%
Basic mate
erials & energy 5.5% 5.3%
5 5
5% 5%
% 4.5%
% 3.8%
%
Health care
e 6% 6% 5..5% 5%
% 5%
% 5%
Information
n technology 6.3% 6% 6
6% 5.8
8% 4.5%
% 4.3%
%
Financial services
s 7% 6.3%
6 6
6% 5%
% 4.8%
% 4.0%
%
Table
Ta 44. All-iin Rates by L
Loan Type
$1M $5M $ 10M $2

25M $50
0M $100
0M
Cash flow loan 6% 5.50%

5 5..50% 5.5
50% 5.25
5% 5%
%
Working ca
apital loan 6% 5.5% 5
5.8% 5. 5% 5.5
5% 5%
%
Equipmentt loan 6% 5% 4
4.8% 5. 3% 3.5
5% 4.5%
%
Real estate
e loan 6% 6% 5
5% 5
5% 4.5
5% 5%
%
Typical fixe
ed-rate loan term
m (years) 5.5 6 5 5 5 7

KScont.
BANK
Seniorleveragemultiplesarereportedbe
elowforthevariousindustriessandEBITDAsi zes.

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
Table 45. Senior Leve

erage Multiplle by EBITDA
A Size
$1M $5MM M
$10M M
$25M M
$50M M
$100M
EBIT
TDA EBIT
TDA DA
EBITD EBITD
DA EBITD
DA EBITDDA
Manufacturing 1.2
25 1.2
25 1.25
5 1.25
5 1.75
5 1.75
5
Retail and consumer servic
ces 1.2
25 1.2
25 1.25
5 1.25
5 1.25
5 1.25
5
Wholesale & distribution 1.2
25 1.2
25 1.25
5 1.25
5 1.25
5 1.5
Business services
s 1.2
25 1.2
25 1.25
5 1.25
5 1.75
5 1.75
5
Basic mate
erials & energy 1..5 1.2
25 1.25
5 1.25
5 1.25
5 1.75
5
Health care
e 1.2
25 1.5
5 1.75
5 2 1.75
5 1.75
5
Information
n technology 1..5 1.5
5 1.5
5 2 1.5 1.75
5
Financial services
s 1.2
25 1.2
25 1.5
5 1.75
5 1.75
5 1.75
5
Average 1..3 1.3
3 1.4
4 1.5 1.5 1.7
Variousfee
esasreportedb
bylendersareaasfollows.
Table 46
6. Fees Charrged
1st quarttile Me
edian 3rd quartile % reportin
ng
Closing fee
e 0.5% 1 .0% 1.5% 15%
Modificatio
on fee 0.2% 0 .3% 0.5% 12%
Commitme
ent fee 0.5% 0 .5% 1.0% 14%
Underwritin
ng fee 0.0% 0 .5% 1.0% 11%
Arrangeme
ent fee 0.0% 0 .5% 1.0% 11%
Prepaymen
nt penalty (yr 1) 1.0% 2 .0% 3.0% 13%
Prepaymen
nt penalty (yr 2) 0.5% 1 .0% 2.0% 13%
Unused line fee 0.3% 0 .4% 0.5% 11%
Refinancinggwasthemostcommonlydesscribedfinancingbybuyersat552%,followedbyexpansionatt17%.
Figure 101. Borrowe

er Motivation
n to Secure F
Financing (p
past six montths)
5%
% Refinancinggexistingloanssorequity
3%
%
11% Expansion
12% 52%
%
Workingcaapitalfluctuatio
ons
17% Financewoorseningoperatingconditions
Managemeentbuyout
Other
BANK
KScont.

2011|PEPPER
Totaldebtservicecoverageratiowasthemostimportantfactorwhendecidingwhethertoinvestornot,followedby
totaldebttocashflow.
Table 47. Importance of Financial Evaluation Metrics

Of little Moderately Very Score
Unimportant Important
importance important important (0 to 4)
Current ratio 29% 24% 29% 13% 4% 1.4
Senior DSCR or FCC ratio 9% 15% 9% 15% 52% 2.9
Total DSCR or FCC ratio 9% 9% 2% 28% 52% 3.1
Senior debt-to-cash flow 7% 14% 16% 34% 30% 2.7
Total debt-to-cash flow 7% 11% 13% 42% 27% 2.7
Debt-to-net worth 16% 18% 29% 20% 18% 2.1
Revenue growth rate 6% 29% 29% 29% 6% 2.0
Table 48. Financial Evaluation Metrics Average Data

Financial ratio covenant
Average borrower data Limit not to be exceeded
after booking
Current ratio 1.5 1.3 1.2
Senior DSCR or FCC ratio 1.3 1.3 1.2
Total DSCR or FCC ratio 1.2 1.25 1.1
Senior debt-to-cash flow 2.0 2.3 3
Total debt-to-cash flow 2.5 2.5 4
Debt-to-net worth 2 1.5 3
Revenue growth rate 5% 5% n/a
Respondentsreportedonthepercentageofloans(bysize)thatrequirepersonalguarantees..
Table 49. Personal Guarantee Percentage of Occurrence by Size of Loan (%)
$1M loan $5M loan $10M loan $25M loan $50M loan $100M loan
Personal guarantee 100% 100% 75% 25% 25% 25%
Approximately63%ofcashflowapplicationsweredeclined.
Table 50. Applications Data
Declined
Cash flow-based 63%
BANKScont.

PEPPERDIN
NEPRIVATECAP
REPORT20112012
Approximately36%ofappplicationsweredeclineddueto
opoorqualityoofearningsand/orcashflowfo
ollowedby22%
%that
weredeclin
nedduetoinsufficientcollaterral.

Figure 102. Rea
ason for Decllined Loans
Quaalityofearninggsand/orcashflow 3
36%
Inssufficientcollatteral 22%
Debtload 10%
%
Custom merconcentrattions 6%
Sizeofcomp pany 6%
Economicconc
E cerns 4%
Sizeoravvailabilityofpe
ersonalguaran ntees 2%%
Weakeningindu
W stry 2%
%
Insufficientm managementteam 2%
%
Insufficientoperatinghisstory 2%
%
Insufficientcrredit 1%
Lackofbaankingrelation nship 1%
O
Other 5%

Responden
ntsagreetheyarefeelingincre
easedpressureffromregulatorss(72%)toavoiddmakingriskylloans.
Fig
gure 103. Fee
eling Increas
sed Pressure
e from Regullators to Avo
oid Making R
Risky Loans

13% 4% Stronglyagree
13%
% Aggree
52%
17% Aggreesomewhat
Neeitheragreeno
ordisagree
Disagreesomew
what


chiefexecu
utives,wouldbe
04. Would Se
Figure 10 enior Manag
gers and Chie
ef Executives s Benefit fro
om Additiona
al Leadership
p and
Skillls Training?
?

12% 12%
% Stronglyagreee
A
Agree
31
1%
46%
Neutral
Disagree
KScont.
BANK

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
Accordingttorespondents,,leadershipskills,sales,marke
etingskills,andstrategicplannningarethemo
ostimportantfo
or
seniorman
nagementtohave.
Figure
e 105. Skills That
T Are Imp
portant for Se
enior Manag
gement to Ha
ave

0% 10% 20% 30% 440% 50% 60% 7
70%
6
67%
Leaderrship %
63%
Saalesandmarke
eting 64%
%
63%
%
Strategicplan
nning 61%
63%
%
ments 61%
63%%
edge 42%
46%
In
nspiringinnovaation 39%
39%
39%
Knowled
336%
Managgementaccoun
nting 33%%
28%
Quantitative
eanalysis/rese
earch 25%30%
30%
ment 28%
Humanresou
urces 24%
28%
Todayy Inthefutture

Responden
oday.
Figure 106
6. Issues Fac
cing Privately
y-Held Busin
nesses
Economicunccertainty(dom
mestic) 56%
40
0%
Accesstocapital 21%
9%
116%
egulationsandtaxes
Governmentre
G 228%
2%
%
onomicuncertaainty(international)
Eco 9%
Compe
etitionfromforreigntradeparrtners 5%
Inflation 7%
Other
O 5%
2%
%

KScont.
BANK

2011|PEPPER
Respondentsindicatedincreasesinalmostallgeneralbusinesscharacteristicsexceptgeneralunderwritingstandards,
amountofnonaccrualloans,sizeofinterestratespreads,businessconditionsandappetiteforrisk.

Stayed Net
about the increase/
same decrease
Demand for business loans
12% 12% 30% 35% 12% 47% 23% 23%
(applications)
General underwriting standards 0% 20% 64% 12% 4% 16% 20% -4%
Credit quality of borrowers applying for
7% 16% 37% 35% 5% 40% 23% 16%
credit
Loans outstanding 0% 11% 17% 56% 17% 72% 11% 61%
Nonaccrual loans 25% 38% 38% 0% 0% 0% 63% -63%

Number/ tightness of financial
6% 11% 61% 17% 6% 22% 17% 6%
covenants
Due diligence efforts 0% 0% 48% 40% 12% 52% 0% 52%
Average loan size 0% 14% 49% 35% 2% 37% 14% 23%
Average loan maturity (months) 0% 7% 60% 28% 5% 33% 7% 26%

Percent of loans with personal
0% 10% 80% 5% 5% 10% 10% 0%
guarantees
Percent of loans requiring collateral 0% 4% 76% 16% 4% 20% 4% 16%
Size of interest rate spreads (pricing) 0% 48% 24% 20% 8% 28% 48% -20%
Loan fees 0% 42% 42% 14% 2% 16% 42% -26%
Standard advance rates 0% 6% 61% 28% 6% 33% 6% 28%
Interest rate spread (pricing) 6% 56% 17% 17% 6% 22% 61% -39%
Senior leverage multiples 0% 4% 58% 29% 8% 38% 4% 33%
Total leverage multiples 0% 8% 54% 29% 8% 38% 8% 29%

Focus on collateral as backup means
0% 8% 58% 29% 4% 33% 8% 25%
of payment
SBA lending 10% 20% 35% 25% 10% 35% 30% 5%
Lending capacity of bank 8% 8% 17% 38% 29% 67% 17% 50%
Appetite for risk 8% 36% 28% 20% 8% 28% 44% -16%
BANKScont.

Respondentsexpectfurtherincreasesinallbusinesscharacteristicsexceptaverageloansize,loanfees,totalleverage
multiples,focusoncollateral,andlendingcapacityofbank.
Net
increase/
decrease
Demand for business loans
(applications) 0% 5% 44% 37% 14% 51% 5% 47%
General underwriting standards
0% 8% 72% 16% 4% 20% 8% 12%
Credit quality of borrowers applying for
credit 0% 16% 56% 26% 2% 28% 16% 12%
Due diligence efforts
0% 0% 22% 61% 17% 78% 0% 78%
Average loan size
0% 31% 56% 6% 6% 13% 31% -19%
Average loan maturity (months)
0% 17% 61% 17% 6% 22% 17% 6%
Percent of loans with personal
guarantees 0% 0% 68% 28% 4% 32% 0% 32%
Percent of loans requiring collateral
0% 0% 56% 42% 2% 44% 0% 44%
Size of interest rate spreads (pricing)
0% 5% 70% 21% 5% 26% 5% 21%
Loan fees
0% 14% 82% 0% 5% 5% 14% -9%
Senior leverage multiples
0% 8% 80% 4% 8% 12% 8% 4%
Total leverage multiples
0% 38% 42% 17% 4% 21% 38% -17%
Focus on collateral as backup means
of payment 0% 23% 63% 12% 2% 14% 23% -9%
SBA lending
0% 0% 89% 11% 0% 11% 0% 11%
Lending capacity of bank
0% 28% 50% 22% 0% 22% 28% -6%
General business conditions
0% 4% 64% 28% 4% 32% 4% 28%
Appetite for risk
0% 4% 60% 32% 4% 36% 4% 32%

BANKScont.

PEPPERDIN
NEPRIVATECAP
REPORT20112012
AssetBa
asedLendinggSpecificCh
haracteristicss
Accordingttorespondentsapproximatelyy25%ofassetb
basedloanswerreissuedformaanufacturingco
ompanies.
Figure 107. Industries Served

S by As
sset-Based L
Lenders
Mannufacturing
3% Whoolesale&distribution
5% 12% 25%
7% Heallthcare
Busi nessservices
8% 16%
Basiccmaterials&eenergy
12
2% 12% Inforrmationtechnology
Retaail&consumerrservices
Fina ncialservices
Otheer

Approximately38%ofthe
ecompaniesthaatbookedassettbasedloansinnthelastsixmo
onthshadEBITD
DAsizelessthan
$5million.
Figure
F 108. Typical
T EBIT
TDA Sizes forr Companies
s Booked
40% 38
8%
30%
16% 18%
%
20% 15%
13%
10%
0%
NegativeEBITD
N DA $05m
million $510million
$ $1050m
million $50+millionEBITDA
A
EBITTDA EBITDA EBITDDA

ntsreportedonallinratesbyttypeandsizeoffcurrentbookeedloansandtheeresultsarereportedbelow.
Responden
Tab
ble 53. All-in Rates on Cu
urrent Asset--Based Loan
ns (medians)

Accounts Real Wo
orking
Inventory Equipment
receivablle estate ca
apital
$5 million loan 11 12 6 7 10
$25 million loan 4 4 4 4 4
$50 million loan 3 3 3 3.5 3
$100 millio
on loan 2.4 2.4 2.5 2.8 2
2.8
Average lo
oan length (month
hs) 42 42 42 39 48

BANK
KScont.
Responden
ntsreportedonstandardadvan
nceratesandth
heresultsarer eflectedbelow.

2011|PEPPER
PEPPERDIN
NEPRIVATECAP
REPORT20112012
Tab
ble 54. Stand
dard Advanc
ce Rate (or LTV ratio) for Assets (%)

Typical Loan Upper Lim
mit
1st qu
uartile Media
an 3rd quarttile 1st quarrtile Median 3rd quartile
Marketable
e securities 90
9 90 90 90 90 90
Accounts receivable
r 80
8 85 85 85 85 90
Inventory - low quality 25
2 30 31 21 30 46
Inventory - intermediate quality 40
4 45 50 40 50 60
Inventory - high quality 55
5 60 65 50 60 65
Equipmentt 59
5 75 80 75 75 78
Real estate
e 60
6 65 70 55 70 75
Land 35
3 40 45 37 42 44
Responden
ntsreportedonvaluationstand
dardsusedtoe
estimateLTVrattios.
Fiigure 109. Va
aluation Stan
ndards Used
d to Estimate LTV Ratio
100%
87%
90%
80%
70% 63%
60%
50% 44%
%
40% 35% 33%
%
30% 25% 25%
20% 10% 11%
6% 6% 5% 6% 5% 7%10% 7%10%6%
%
10%
0%
Purchase Depreciated Facevalue Fairmarket Forced Orderly Other
price value(book) value liquidation n
liquidation
Equipment Realestate Accountsreceivable Inventory

Accordingttorespondentsworkingcapitaalbasedloansh
hadthesmallesstdeclinerate(559%)overthelastsixmonths..
Figure
e 110. Asset--Based Loan
ns Decline Ra
ate
100%
774% 79% 79%
80% 72% 73%
%
59%
60%
40%
20%
0%
Workingcapita
W al Receivablees Equipm
ment Invent orybased R
Realestate O
Otheroperatin
ng
based baseed based assetbased

2011|PEPPER
ABOUTTHEAUTHOR
JohnPaglia,PhD,MBA,CPA,CFA
AssociateProfessorofFinanceandSeniorResearcher
PepperdinePrivateCapitalMarkets
Dr.Paglia,aformerJulianVirtueandDenneyProfessorshiprecipient,isanassociateprofessoroffinanceat
PepperdineUniversityanddirectsthePepperdinePrivateCapitalMarketsProject.Hehasover10yearsof
universityteachingexperienceinfinance,performsbusinessvaluationsforprivatelyheldcompanies,andhas
testifiedasanexpertoneconomicdamageandvaluationmatters.
HisworkonthePepperdinePrivateCapitalMarketsProjectthefirstsimultaneous,comprehensive,andon
goinginvestigationofthemajorprivatecapitalmarketsegmentshasresultedinover20,000report
downloadsinmorethan70countriesandhasearnedhimthe2011GeorgeAward,whichisgiventotheone
facultymemberannuallywhobestleveragesthebusinesscommunitytomakeadifferenceintheclassroom.
HisresearchhasappearedintheWallStreetJournal,CNBC,USAToday,andtheNewYorkTimes,been
publishedinanumberofjournalsandbeenpresentedatdomesticandinternationalconferences.Dr.Paglia
holdsaPhDinfinance,anMBA,aBSinfinance,andisaCertifiedPublicAccountant(CPA)andChartered
FinancialAnalyst(CFA)charterholder.
Contact:privatecap@pepperdine.edu

ABOUTPEPPERDINEUNIVERSITYS
GRAZIADIOSCHOOLOFBUSINESSANDMANAGEMENT
Foundedonthecorevaluesofintegrity,stewardship,courage,andcompassion,PepperdineUniversitys
GraziadioSchoolofBusinessandManagementhasbeendevelopingvaluescenteredleadersandadvancing
responsiblebusinesspracticesince1969.Studentfocused,experiencedriven,andgloballyoriented,the
GraziadioSchooloffersfullyaccreditedMBA,masterofscience,andbachelorscompletionbusinessprograms.
Moreinformationfoundat:bschool.pepperdine.edu/newsroom

INDEXOFTABLES
Table1.PrivateCapitalMarketRequiredRatesofReturn...................................................................................8
Table2.GeneralBusinessandIndustryAssessment:TodayversusSixMonthsAgo............................................12
Table3.GeneralBusinessandIndustryAssessmentExpectationsovertheNext12Months...............................12
Table4.MedianDealMultiplesbyEBITDASizeofCompany..............................................................................17
Table5.MedianTotalLeverageMultiplesbySizeofCompany...........................................................................18
Table6.MedianSeniorLeverageMultiplesbySizeofCompany.........................................................................18
Table7.BalanceofAvailableCapitalwithQualityCompanies............................................................................19
Table8.HowDifficulttoArrangeSeniorDebtforTransactionsoverthePastSixMonths...................................19
Table9.GeneralBusinessandIndustryAssessment:TodayversusSixMonthsAgo............................................21
Table10.GeneralBusinessandIndustryAssessmentExpectationsovertheNext12Months.............................21
Table11.MedianRevenueDealMultiplesbyRevenueSizeofCompany............................................................27
Table12.MedianEBITDADealMultiplesbyRevenueSizeofCompany..............................................................27
Table13.GeneralBusinessandIndustryAssessment:TodayVersusSixMonthsAgo.........................................30
Table15.ImportanceofFactorsWhenEvaluating.............................................................................................36
Table16.GeneralBusinessandIndustryAssessment:TodayversusSixMonthsAgo..........................................37
Table18.GeneralInformationonInvestmentsbyCompanyStages...................................................................41
Table21.VCFundData.....................................................................................................................................47
Table22.GeneralInformationonInvestmentsbyCompanyStages...................................................................48
Table25.PEGFundData...................................................................................................................................54

Table26.GeneralCharacteristicsBuyoutTransactions(medians)...................................................................56
Table27.GeneralCharacteristicsNonBuyoutTransactions(medians)............................................................56
Table28.DealMultiplesAmongIndustries(medians)........................................................................................57
Table29.TheEasetoArrangeSeniorDebtforTransactionsoverthePastSixMonths........................................58
Table30.TheBalanceofAvailableCapitalwithQualityCompaniesfortheFollowingSize.................................59
Table31.ValuationDiscountforMinorityStockInterestsinaTypicalPrivatelyHeldCompanywithaTotalEquity
Valueof$10Million.................................................................................................................................59
Table34.MezzanineFundData.........................................................................................................................64
Table35.SponsoredDealsbySizeofInvesteeCompanyEBITDA(medians).......................................................66
Table36.InvestmentTypebySizeofInvesteeCompany,SponsoredDeals........................................................66
Table37.NonSponsoredDealsbySizeofInvesteeCompanyEBITDA(medians)................................................66
Table38.InvestmentTypebySizeofInvesteeCompany,SponsoredDeals........................................................67
Table39.ImportanceofFinancialEvaluationMetrics........................................................................................69
Table40.FinancialEvaluationMetricsAverageData.........................................................................................69
Table44.AllinRatesbyIndustry......................................................................................................................72
Table45.AllinRatesbyLoanType...................................................................................................................72
Table46.SeniorLeverageMultiplebyEBITDASize............................................................................................73
Table47.FeesCharged......................................................................................................................................73
Table48.ImportanceofFinancialEvaluationMetrics........................................................................................74
Table49.FinancialEvaluationMetricsAverageData.........................................................................................74
Table50.PersonalGuaranteePercentageofOccurrencebySizeofLoan(%)......................................................74
Table51.ApplicationsData...............................................................................................................................74

Table54.AllinRatesonCurrentAssetBasedLoans(medians)..........................................................................79
Table55.StandardAdvanceRate(orLTVratio)forAssets(%)...........................................................................80
INDEXOFFIGURES
Figure1.PrivateCapitalMarketRequiredRatesofReturn..................................................................................7
Figure2.AnnualRevenuesofCompaniesValued...............................................................................................10
Figure3.UsageofValuationApproaches...........................................................................................................10
Figure4.UsageofMultiples..............................................................................................................................11
Figure5.AverageRiskFreeRate,Market(equity)RiskPremiumandLongTermGrowthRate...........................11
Figure6.DiscountforLackofMarketability(DLOM)byRevenueSizes...............................................................11
Figure7.ExplicitForecastPeriodforHighGrowthCompaniesbyRevenueSizes(years).....................................12
Figure8.IssuesFacingPrivatelyHeldBusinesses...............................................................................................13
Figure9.PrivateBusinessSalesTransactionsClosedintheLastSixMonths.......................................................14
Figure10.BusinessTypesThatWereInvolvedintheTransactionsClosedintheLastSixMonths.......................15
Figure11.AverageNumberofMonthstoCloseOneDeal..................................................................................15
Figure12.PrivateBusinessTransactionsExpectedtoCloseintheNext12Months............................................15
Figure13.PercentageofBusinessSalesEngagementsTerminatedWithoutTransacting....................................16
Figure14.ReasonsforBusinessSalesEngagementsNotTransacting.................................................................16
Figure15.ValuationGapinPricingforTransactionsThatDidntClose...............................................................16
Figure16.UsageofValuationApproaches.........................................................................................................17
Figure17.UsageofMultiples............................................................................................................................17
Figure18.ComponentsofClosedDeals.............................................................................................................18
Figure19.PremiumPaidbyStrategicBuyersRelativetoFinancialBuyers.........................................................19
Figure20.WouldSeniorManagersandChiefExecutivesBenefitfromAdditionalLeadershipandSkillsTraining?
................................................................................................................................................................20

Figure21.SkillsThatAreImportantforSeniorManagementtoHave................................................................20
Figure22.IssuesFacingPrivatelyHeldBusinesses.............................................................................................22
Figure23.PrivateBusinessSalesTransactionsClosedintheLastSixMonths.....................................................24
Figure24.PrivateBusinessSalesTransactionsExpectedtobCloseintheNextTwelveMonths..........................24
Figure25.PrivateBusinessSalesTransactionsExpecttoCloseintheNext12Months.......................................25
Figure26.AverageNumberofMonthstoCloseOneDeal..................................................................................25
Figure27.PercentageofBusinessSalesEngagementsTerminatedWithoutTransacting....................................25
Figure28.ReasonsforBusinessSalesEngagementsNotTransacting.................................................................26
Figure29.ValuationGapinPricingforTransactionsThatDidntClose...............................................................26
Figure32.ComponentsofClosedDeals.............................................................................................................28
Figure33.HowDifficulttoArrangeSeniorDebtforTransactionsoverthePastSixMonths................................28
................................................................................................................................................................28
Figure37.AssetsunderManagementorInvestableFunds.................................................................................32
Figure38.CurrentandTargetAssetAllocationsfor"AlternativeAssets"(%oftotalportfolio)...........................32
Figure39.CurrentTargetAssetAllocation.........................................................................................................33
Figure40.AnnualReturnExpectationsforNewInvestments.............................................................................33
Figure41.AssetswiththeBestRisk/ReturnTradeoffCurrently........................................................................34
Figure42.IndustrywiththeBestRisk/Return....................................................................................................34
Figure43.GeographicRegionsoftheWorldOfferingtheBestRisk/ReturnTradeoffCurrently...........................35
Figure44.GeographicRegionsoftheUSAwiththeBestRisk/ReturnCurrently.................................................35
................................................................................................................................................................36

Figure48.TotalNumberofInvestmentsMadeintheLastSixMonths...............................................................39
Figure49.NumberofFollowonInvestmentsMadeintheLastSixMonths........................................................39
Figure50.NumberofTotalInvestmentsPlannedoverNext12Months.............................................................40
Figure51.NumberofFollowonInvestmentsPlannedoverNext12Months......................................................40
Figure52.TypeofBusinessforInvestmentsPlannedoverNext12Months........................................................40
Figure53.GeographicLocationofPlannedInvestmentoverNext12Months....................................................42
Figure54.GeographicalLimitforInvestment....................................................................................................42
Figure56.ItemsRequiredtoCloseOneDeal.....................................................................................................43
Figure57.ExitPlansforPortfolioCompanies.....................................................................................................43
................................................................................................................................................................43
Figure66.GeographicLocationofPlannedInvestmentoverNext12Months....................................................49
................................................................................................................................................................50

Figure73.TypicalInvestmentSize.....................................................................................................................54
................................................................................................................................................................59
Figure86.SBIC(smallbusinessinvestment)Firms.............................................................................................63
Figure87.TypicalInvestmentSize.....................................................................................................................63
Figure93.BorrowerMotivationtoSecureMezzanineFunding(pastsixmonths)...............................................67
................................................................................................................................................................68

Figure98.DescriptionofLendingEntity.............................................................................................................71
Figure99.ParticipationinGovernmentLoanPrograms.....................................................................................71
Figure100.TypicalInvestmentSize...................................................................................................................72
Figure101.BorrowerMotivationtoSecureFinancing(pastsixmonths)............................................................73
Figure102.ReasonforDeclinedLoans...............................................................................................................75
Figure105.FeelingIncreasedPressurefromRegulatorstoAvoidMakingRiskyLoans........................................75
................................................................................................................................................................75
Figure104.SkillsThatAreImportantforSeniorManagementtoHave...............................................................76
Figure106.IssuesFacingPrivatelyHeldBusinesses...........................................................................................76
Figure107.IndustriesServedbyAssetBasedLenders.......................................................................................79
Figure108.TypicalEBITDASizesforCompaniesBooked....................................................................................79
Figure109.ValuationStandardsUsedtoEstimateLTVRatio.............................................................................80
Figure110.AssetBasedLoansDeclineRate......................................................................................................80

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Growth Capital Fixated on Large Companies

ThePeppe erdineprivateccostofcapital survey(PCOC)isthefirstcoomprehensive andsimultaneeousinvestigattionof

Table 1. Private Capital Market Required Rates of Return

1st quartile Median 3rd quartile

DEC. 9-11, 2011 Pepperdine Universitys Graziadio School of Business and

dec 3-7, 2012 Who Should Attend:

Pepperdine University CPAs, M&A intermediaries, investment bankers, private equity

register for classes today by calling

Accordingttothesurveyreespondentsthemostimportan ntissuesfacing privatelyheldbusinesstodayaredomestic

Figure 2. Annual Rev

Figure 6. Discount for Lack of Marketability

Figure 8. Issues Facin

Th hetopthreereaasonsfordealsnotclosingwerevaluationga p(29%),econo omicuncertainty(18%),and

Figure 11. Average Number of Month

Figure 14. Reasons

Figure 15. Valuatio

Figurre 16. Usage of Valuation

34% Assetbased approach

Figure 17. Usage of Mu

Table 5. Median Total Leve

Retail & Bassic

$1M 3 2.75 2.5 3 2.5

Retail & Bassic

$5M 11% 19% 23% 22% 15% 8% 2% -0

$10M 1% 19% 22% 20% 15% 15% 9% 0.1

$15M 2% 15% 20% 15% 23% 12% 1

$25M 3% 12% 14% 21% 14% 14% 2

$50M 4% 12% 10% 18% 10% 14% 3

$100M 7% 7% 16% 7% 13% 18% 3

Approximately79%ofrespondentsagree ethatamongco ompaniesthatttheyhaveworkkedwith,seniorrmanagers,succhas

0% 10% % 40% 50% 60% 70% 80% 90% 10

Deal flow 9% 21% 23% 32% 14% 46% 30% 16%

Leverage multiples 8% 15% 47% 29% 0% 29% 23% 6%

Deal multiples 5% 19% 42% 31% 2% 34% 24% 9%

Margin pressure on companies 2% 7% 34% 41% 16% 58% 9% 49%

Leverage multiples 4% 18% 43% 35% 0% 35% 22% 13%

Deal multiples 3% 24% 34% 39% 1% 39% 27% 13%

Difficulty financing/selling business 0% 24% 42% 26% 9% 35% 24% 11%

Margin pressure on companies 2% 9% 40% 38% 11% 49% 11% 38%

Figure 22. Issues Faciing Privately

Approximately39%ofthe e99participanttsinthebrokerrsurveysaidth eyexpecttoclo

Figure 23. Private Busiiness Sales Transactions

Figure 24. Private Business

Figure 26. Average Number of Month

Figure 28. Reasons

Figure 29. Valuatio

Figurre 30. Usage of Valuation

Figure 31. Usage of Mu

Retail & Basicc

$100,000 3 2 3.5 3 2.75 5.5 5 3.25 3

Figure 33. How Difficult

Approximately72%ofrespondentsagree ethatamongco ompaniesthatttheyhaveworkkedwith,seniorrmanagers,succhas

Figure 36. Issues Faciing Privately

0% 10% 20% 30% 40% 50% 60%

Deal multiples 7% 24% 59% 9% 2% 10% 31% -21%

Business exit opportunities 8% 28% 30% 30% 3% 33% 37% -3%

Business opportunities for growth 5% 24% 37% 29% 5% 34% 29% 5%

Approximately20%ofthe e71respondenttsinthelimited dpartnersurveeyreportedbuyyoutprivateequityasbeingth hebest